Mind the gap: women face £97k pension shortfall

As someone whose pension took a bit of a back seat while freelancing to care for my (then) young children, pension-related research always grabs my attention. Particularly when it’s geared to women. So, when the latest research from Fidelity International landed in my inbox to reveal that women retire - on average - with £96,633 less than men, I was hooked.

Fidelity’s analysis, which is based on ONS earnings¹, highlights the massive impact that pay disparities, career interruptions and systemic challenges faced by women can have on a woman’s pension pot.

This £97k pension gap figure was reached by using the average recorded salaries by ONS for those aged 21-29 of £33,459 for men and £28,787 for women. Calculations then assumed standard pension contributions of 8% from age 21, annual salary growth of 2%, inflation of 2%, and 4.25% annual investment growth over 45 years.

By age 66, the average pension pot for men reaches £578,412, while women’s remains at £481,779.

To bridge this gap, women would need to work an additional 3.3 years, delaying retirement until 70².

Now, for the good news…

If you know that the odds are stacked against you - you can use this knowledge to put plans in place, to ensure your pension pot isn’t compromised further down the line. And I should know.

When I returned to full-time work, I immediately started upping my pension contributions.

According to the same Fidelity research, this is a step in the right direction. Increasing pension contributions from 8% to 10% can help women close the gap and - ultimately - retire as the same time as men, with a comparable pension pot³.

What else can women do if they’re trying to play ‘pension catch up’?

I asked Sabrina Tambini - from our Wealth Management team - her top tips for anyone wanting to boost their pension savings. Just to be clear, this isn’t a personal financial recommendation. Sabrina’s just sharing some of the conversations she’s had over the years with her female clients to give you some pointers to think about.

Here’s what she had to say:

1. See how much you’ve saved in your pension - This may seem obvious, but it’s a good first step. Over the years it’s possible to collect a number of pensions. If you find it difficult to keep tabs on them, you could always think about moving them into one place. And if you think you might have a pension, but can’t find the paperwork, take the time to track it down. The Pensions Policy Institute shows that there are around 3.3million pension pots that are considered ‘lost’ containing an average of around £9,500 per pot. The value of these lost pensions stands £31.1bn⁴. If you think you might have a ‘lost pension’  the government’s tracing service is a good place to start.
   
    Learn more about bringing your pensions together
2. Be sure of your goals - I always ask my clients what their dream retirement looks like. If you’ve been used to three holidays abroad, you might not be best pleased if you can only afford a week away in the UK once you retire. Our retirement calculator can help you understand if you’re on track to meet your retirement goals.
   
   See our retirement calculator
3. Know what you’re invested in - If you have a workplace pension, do you really know what’s in it? I have clients who have no idea. Only to discover they’re in a lifestyle fund that has a 75% exposure to bonds and yet they’re still 15 or 20 years out from retirement.  There’s a wisdom to de-risking a portfolio if you’ve reached your target pension pot and want to protect it if you’re close to retirement. But if you’re years out, you need to be sure that the investments you’re holding will help to build your wealth and meet your goals.
4. Increase your monthly contributions if you can - Once you’ve been through the steps above, and if your pension is not where it needs to be, don’t panic. As our recent research shows, even small amounts can make a big difference. Don’t forget to check if your employer offers to match additional contributions, as that’s worth considering too.
   
   Use our Power of Small Amounts calculator
5. Use Carry Forward - I have a very successful, highly intelligent client. But - by her own admission - she doesn’t know a lot about pensions. When she first came to me, it turned out that she’d only been making minimum contributions to her employer pension when she could afford more. She wanted to catch up. Carry Forward allows you to use any unused annual allowance from the previous three tax years to increase your pension contributions in the current tax year. It was certainly invaluable for my client. We calculated that she could afford to put £72,000 from her savings into her pension, which she got £18,000 tax relief from. As a higher rate taxpayer, she could then claim a further £18,000 from the HMRC, bringing her total tax relief to £36,000! Of course, not everyone has this sort of money in their savings (or earns as much), but if you inherit some money, it’s certainly worth thinking about.
   
   Learn more about Carry Forward
6. Check on your retirement age - make sure you’re still happy with your nominated retirement age if you have a workplace pension. At 18 you might have thought you wanted to retire at 55. If that’s changed, you should update this - otherwise it’s likely your provider will start to automatically de-risk your investments as you approach your target age.
7. Can’t pay into a pension? If you’re a stay-at-home mum, carer or don’t work for whatever reason - you can still put £2,880 into a pension and get £720 tax relief from the government each year. You can also pay into a tax-efficient Stocks and Shares ISA so that your money has the potential to grow free from income or capital gains tax.
   
   Open a Self-Invested Personal Pension
   Open Stocks and Shares ISA

And finally… a note about financial advice

Not everyone has the time, inclination or confidence to manage their own investments. That’s where financial advice comes into its own. If you’ve got over £100k and are looking for a personal financial recommendation, you might like to find out more about Financial Advice. This is a paid-for service.

• Learn more about financial advice

Equally, if you have over £250k to invest (which can include your pension), you automatically qualify for guidance with your own Relationship Manager.

It might interest you to know that over half of our advisers and relationship managers are women, which is way above the industry ‘norm.’

• Learn more about Wealth Management

Source:

¹ Office for National Statistics (ONS), released 29 October 2024, Earnings and hours worked, age group: ASHE   Table 6 - Office for National Statistics
² Fidelity International analysed ONS data on earnings and pension savings for women 21 years old with breaks at aged 30 years old, for varying time periods from 6 months to 2 years. 
The calculations assume an investment period of 45 years, from aged 21 to 66, accounting for 4.25% annual investment growth, 2% annual salary growth until age 50 and 2% annual inflation growth. 
Fidelity calculated, assuming a monthly contribution of 8% in line with auto-enrolment, rising to 10% to illustrate the impact of small increase in contributions. 
³ In April 2019 the minimum contributions to auto-enrolment workplace pensions were raised to 8% of earnings, including what the employer puts in and tax relief from the government.
⁴ Which.co.uk - October 2024

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from one of Fidelity’s advisers or an authorised financial adviser of your choice. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.