What does the ‘pay gap’ mean for female pensions?

We’ve come a long way in terms of gender equality and yet many women still get a raw deal at work in 2017. While it has now been illegal to pay men and women a different salary for doing the same job for 40 years, the pay gap between the genders still stands at 18%.

Progress on closing this gap has been slow going. Politicians hope that transparency is the answer. New legislation means that more than 9,000 companies – employing about 15 million people – will have to publish data on how they pay men and women. It is hoped that putting the issue in the spotlight will help to highlight the worst offenders and force them to change their ways.

Yet it’s important to realise that the pay gap doesn’t just effect the pay packet earned by women. There’s also a knock-on effect when it comes to pensions and, as the debate over the pay gap intensifies, it’s important that this issue is not ignored.

Women and pensions: Report spells out issues

Research carried out for Telegraph Money by Prudential showed that women have to save three per cent more than men throughout their careers just to be able to get the same income in their retirement.

The Telegraph pointed out that a male 25-year-old would only have to save 10.67 per cent of his salary across a 40-year career in order to earn a £25,000 retirement income. A woman would, however, have to set aside 13.3 per cent.

That might sound bad enough, but Sam Smethers, the chief executive of the Fawcett Society, said the picture might even be gloomier.

She said: “Pension saving inequality is actually much worse than this report suggests. The model assumes that women have an unbroken contribution record.

“But we know that women are much more likely to take breaks from paid work to have children or care for others. This widens the pay gap and leads to a pensions gap of 40 per cent.”

The research also showed that women retiring in 2017 will receive an average of £6,400 a year less than men – a disparity that has risen in recent years.

What can women do to bridge the gap?

It’s probably no comfort for women in work now to see that change is slowly taking place. But female workers are not completely powerless if they want to try to redress the balance in their own personal circumstances.

While it might be grossly unfair, there are two key things that they could and should look to do. These are:

  • Make an extra effort to save more into a pension pot at the earlier possible opportunity. Starting early is the key to building up a nice nest egg – by not waiting until its too late you can lay the foundations for a more prosperous retirement. That means not settling for the workplace pension that you’ll be involved in and looking to investments such as SIPPs to supplement the amount you can get from your employer and the state.
  • Look to fill in ‘gaps’ in your National Insurance and pension that might arise from taking time off to have children, for example. By topping up your contributions you can prevent this ‘gap’ harming your income later down the line.

Starting saving for your pension early, making smart investments and filling in gaps is sound advice for anyone – but it’s particularly relevant for women if they want to avoid one of the harsher effects of the pay gap.