Women £78,000 worse off in retirement – closing the gender pensions gap

Despite improvements over the last decade, there remains a significant gender gap when it comes to pensions.

A new survey has found that women are, on average, £78,000 worse off than men in retirement, with the survey suggesting that one of the reasons for this is that women take fewer financial risks than men.

Here, we look at the latest figures, why women take fewer financial risks, and consider how shopping around could help women to close the gender pension gap.

Women £78,000 worse off in retirement

The latest Women and Retirement report from Scottish Widows has revealed that, while women in the UK are better prepared for the future than ever before, they are still likely to be £78,000 worse off than men in retirement.

The comprehensive report which featured responses from more than 10,000 women revealed that more than half of women (57%) are saving adequately for their retirement – the highest proportion since 2005.

However, while the gender pensions gap has narrowed, women are still likely to be £78,000 worse off than the average man in retirement, equivalent to £3,000 less in income each year.

While pension auto-enrolment has certainly helped, women are often unable to benefit from this due to having children or caring for others. Pension contributions currently stop after 39 weeks on maternity leave, while looking after a child often means working part-time and potentially falling below the auto-enrolment minimum threshold. Three-quarters of all part-time workers are women.

The Scottish Widows study also found that more than a third (37%) of women have been forced to opt out of their pension scheme because of other financial commitments, compared to a fifth (21%) of men.

Despite these issues, there has certainly been some positive progress made over the last 15 years. For example, there has been a 14.6% increase in the proportion of women that say they are saving some money for retirement, while the average percentage of income saved has increased by 4.6%.

Women taking fewer risks

One of the reasons why women may still be retiring with less than their male counterparts is that they are less likely to take financial risks.

A new study from Cass Business School has looked at attitudes to risk across the UK and has concluded that ‘loss aversion’ among women is one of the reasons their pensions are typically smaller than those of men. The team behind the research described this behaviour as ‘reckless conservatism’.

Having looked at responses from more than 4,000 people, Cass Business School also found that single people are less risk averse than partnered people who are, in turn, less risk averse than widowed, divorced and separated people.

Cass Pensions Institute director and report co-author professor David Blake says: “Ways may need to be found of nudging women away from their comfort zone. One common way to do this is to have a gender-neutral default investment fund that involves a more aggressive investment strategy at young ages than women would normally choose.

“On the other hand, men’s investment overconfidence can lead to ‘reckless adventurism’. This is not necessarily desirable at older ages close to retirement, since there is less time to recover from a severe fall in stock markets. To avoid this, ways need to be found of guiding men away from this type of behaviour.”

The report also found Guardian readers tend to be the most risk and loss averse while Financial Times, Times, and Telegraph readers are the least.

Liberal Democrat voters are the most risk and loss averse, while Scottish National and Plaid Cymru Party members are the least.

Shopping around can help women to close the gender pension gap

One of the ways that women can ensure they have extra money in retirement is by making the most of the pension savings they have built up.

The Financial Conduct Authority has highlighted that too few women are shopping around when it comes to securing their retirement income and too many simply accept the offer made by their pension provider, without considering other options which could provide more income in retirement.

According to a comparison of prevailing UK annuity rates as at March 2019 conducted by the LEBC Group, for a healthy individual with a life expectancy of average or longer, shopping around could provide an increase in guaranteed annual retirement income of up to 8.34%.

For someone in ill health, the differences are even greater. Even with no health issues, just being a smoker could increase lifetime income by 17.17%. Where there are multiple health issues, combined with lifestyle factors the guaranteed income offered could be up to 50% more than a healthy person.

Get in touch

Want to have a chat about your retirement savings or what’s the best way to get the most from your pension pot? Get in touch. Email info@depledgeswm.com or call (0161) 8080200.

Please note

A pension is a long-term investment not normally accessible until 55. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.