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    The gender pension gap: what women need to know

    30 September 2021

    Bryan Parkinson

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    3 minute read

    Things to know about the gender pension gap

    How women can boost their retirement pot

    ​Increasing attention has been given to the UK gender pay gap in recent years, which stood at 7.4% in April 2020. Yet there is also a significant overall difference between women’s income in retirement compared to men’s. The COVID-19 pandemic has widened this gap dramatically - to nearly £200,000, according to the Centre for Economics and Business Research. In this article, we explore why this gender pension gap exists, why COVID-19 has made things worse and how women can take action to protect their retirement goals.

    Why is there a gender pension gap?

    To answer this question, it is important to separate the state pension from workplace pensions. The former is the income you receive from the UK government at your state pension age, which largely depends on your National Insurance (NI) record. To get the full new state pension of £179.60 per week in 2021-22, you need at least 35 “qualifying years” of NI contributions.

    This starts to show why many women have a lower state pension than men. Historically, women have taken more responsibility for raising children and have taken time out of their careers to do so. Over these years, you can keep building up your NI record when you claim Child Benefit - but only until your youngest child is 12. Many women have also not claimed, believing they are not eligible - or it is not worthwhile - since their household income exceeds £50,000 (the level at which an individual would become liable to pay tax on the benefit). There is also an ongoing battle by many women born in the 1950s to get compensation for the rising state pension age, which now stands at 66 for both men and women.

    The gender inequality between workplace pension savings is somewhat different because it relates to the gender pay gap. In short, the amount an employee saves into their workplace pension is usually a percentage of their salary - and, historically, there has been a wide gap between the average salaries of men and women. Additionally, 38% of women in 2020 were working in part-time employment (often to allow for caring responsibilities) which reduces the amount they may feel able to contribute to a workplace pension.

    The impact of COVID-19 on women's pensions

    According to the Financial Times, the gender pension gap for over-55s widened by 17% in 2020 as the COVID-19 pandemic hit household finances. This is despite the fact that women, on average, tend to contribute more into their pensions than men – 5.1% and 4.8%, respectively.

    The data is still emerging about why this has happened. Part of the reason may be that women are over-represented in sectors hard-hit by the pandemic, such as hospitality, retail, leisure, tourism and the arts. Another likely factor is that women are more likely to occupy precarious, low-paid jobs, leaving them more vulnerable to getting furloughed or losing their jobs. With more children also needing to engage in online learning from home during the lockdown months, this increased childcare burden has also largely fallen onto women. A March 2021 study showed that among parents, women are ‘much more likely to say that they were the ones most responsible for childcare or home schooling when schools were closed due to the COVID-19 pandemic than men, with 71% saying so compared to 26% of men’. This further impacts on women’s ability to earn and save into a pension.

    Another possible factor is the impact of divorce. Whilst relationships are not always meant to be, divorce puts the separating parties under more financial pressure. According to Age UK, the result is usually harder on women’s income in retirement because entitlement to their husband’s private pension is rarely brought up in the divorce proceedings.

    What women can do about the pension gap

    This paints a bleak picture for women so far. Fortunately, there is much that can be done to help improve your retirement prospects. For younger women, a simple starting point is to contribute to a pension as early as possible. With more time on your side, your pension investments have more time to grow through the power of compound interest.

    If you are working, make sure you are opted into your workplace pension scheme (it’s likely you’ll have been automatically enrolled into it, but worth checking to make sure). If possible, you could approach your employer to ask them to match your workplace pension contributions (they are required to put in a minimum of 3% of your qualifying earnings).

    For women in relationships, be careful about passing total responsibility to your spouse or partner. Make sure you have a stake in the household finances. Not only is this empowering, but knowing what assets are held also helps protect you financially should a divorce ever occur. If this ever does happen, keep pensions in your mind - since these are often the second-highest valued asset, after the house (if you’re a homeowner).

    If you are on maternity leave or are taking a career break to care for children under 12, check your eligibility for National Insurance Credits. This could help you get Class 3 Credits towards your state pension whilst you are not working. If there are gaps in your NI record and it looks like you will not gain the full 35 qualifying years you need before you retire, consider paying voluntary National Insurance Contributions (NICs) to plug “gaps” in your record. You can check your record quickly online using the UK Government website.

    If you see yourself not working for a while (to help look after dependants over 12), then consider speaking with your spouse about paying voluntary NICs each year you will not work, using the household finances. It will benefit you both in the future if you both have a full state pension to draw from, and it will help protect your retirement finances if you ever divorce.

    Further reading

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    There is a significant overall difference between women’s income in retirement compared to men’s, and the COVID-19 pandemic has widened this gap dramatically - to nearly £200,000

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