Retirement Planning: The Gender Gap

Investment / Savings
Early Career
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Research suggests women save less than men, but why is that the case?
Old man and woman walking

Did you know that men are twice as likely to earn over £50,000 a year than women? Or that mothers who had their first child below age 33 earn 15% less than those who hadn’t had children by age 42?

In March 2016 the Institute of Public Policy Research (IPPR) presented its key findings to the Trade Union Centre (TUC), which proves that a 'Motherhood Pay Penalty' really does exist. By contrast, mothers who had their first baby over the age 33 experience a 'pay bonus' compared to similar women who haven’t had children.

So why is this? It’s true to say that the world has definitely improved for the modern day woman living within the UK, but there is still some way to go in closing what is deemed to be ‘the gender pay gap’.

It should, therefore, come as no surprise when a recent study conducted by Scottish Widows found that men are more likely to make provision for retirement than women; with a male saving on average £177 per month and a female saving on average £105 per month. At the present time, it is known that only 52% of women are making adequate savings into pensions as compared to 60% of men.

The study also found that women do indeed prioritise short term savings over longer term savings; taking responsibility for childcare, caring for elderly parents, or making adequate provision for maternity leave. Unsurprisingly, 18% of women work part time as opposed to 6% of men, and therefore, attitudes toward retirement planning appear to be far less important to women than men, as the families immediate needs are prioritised by the mother.

Making sacrifices

As a 30-something parent of a one and a half year old, I can understand why many women make sacrifices in the early stages of their career (after all, simple biology dictates who will be pregnant and carry the child) and I understand that women want to spend time with their children in the early years. But surely, in this day and age not all families are structured in this way and we should see more female breadwinners and men taking on more family responsibilities: but these are still the minority which is why there is a clear dichotomy between male and female pension provision.

Could this be the reason why 71% of women don’t know how much pension they will need to live off in retirement? Unfortunately, 28% of women admit to retiring on less than originally expected. So when taking into account an aging population and an ever-increasing state pension age, our industry and government need to do more to help close the gender gap and provide information to other women, especially the twenty-somethings who are taking time off work to have children.

Seeing improvements

Setting these issues aside, the number of people making adequate pension savings (as defined as 12% of their income) has markedly improved since 2013 when only 45% of the population were making contributions. In 2015, this number increased to 56% and we have auto-enrolment to thank for this as evidenced by a 14% increase in pension savers employed by firms who have gone through AE as opposed to those who have not, the latter pension savers which have reduced by 7%.

Subsequently, the 39% of self-employed people (who do not need to go through the auto- enrolment process) are still not saving. However, the good news is that we have a higher proportion of self-employed females making pension savings as opposed to their male counterparts.

Arguably, auto-enrolment has been a successful exercise and perhaps we could use this strategy to capture more female pension savers, especially those who are working part time hours, with earnings below the threshold, in order to ensure more women have adequate provision in retirement.

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