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How Women Can Overcome the Pension Gender Pay Gap

Annie 24th Aug 2021 One Comment

Reading Time: 9 minutes

Women face a pension pay gap of almost 60% compared to men. When it comes to pensions, this pay gap can mean the difference of hundreds of thousands of pounds for retirement*.


Why is there a pension gap between genders?

According to research from online pension provider, PensionBee, the root of the pension gender gap lies in the overall gender pay gap. Men historically earned a lot more than women, and while most businesses have caught up, other factors come into play. Namely: childcare and domestic responsibilities.

Women take maternity leave when they have children – but men (often) don’t take paternity leave. If they do, it is for a short period of time immediately after the birth, and they return to work at the same pay grade and without missed opportunities. Women tend to take the brunt of childcare after maternity leave ends: they will work reduced hours or leave work altogether, due to the prohibitive cost of nursery care.

In addition, women are far more likely than men to take on a larger proportion of domestic responsibilities, which can be anything from caring for other family members to regular housework. The time required for these responsibilities means women work reduced hours to accommodate them – which also means they are less likely to aim for high-level well-paid jobs which demand more of their time.

This inequity in unpaid labour for childcare and domestic responsibilities impacts what women can save into their pension. When not working, they have no workplace pension scheme. When they work reduced hours, they may not quality for a pension scheme – or feel they cannot afford to sacrifice any pay for their pension.


A small improvement – and then Covid-19

The pension gender pay gap was starting to reduce over time. There is increasing recognition that historical trends, of men working and women being care providers, is no longer fit for the modern way of life. Businesses are increasingly offering more paternity leave – or shared parental leave with mothers – as a way to address some of these inequalities.

However, Covid-19 had a shocking impact on women in particular. Globally, women lost their jobs in the pandemic around the same rate as men – but men are now more likely to be rehired than women. In addition, women were expected to take on additional child caring responsibilities such as home schooling, increasing their unpaid labour.

As the economy recovers in the UK, it is a good time for businesses to reassess the gender imbalances in their workforce – but this will take time. Time your pension – and the gender gap it has – doesn’t have!


Ways to close the gap

The good news is there are ways to close the gender pension gap. Follow these tips to make sure you’re getting the most out of your pension and you’ll be set for a comfortable retirement!

  1. Use your company pension

When money is tight, it’s easy to see the pension contributions on your payslip and think: “I could have done with that cash this month”. However, if you can, don’t opt out of your workplace pension scheme.

The money could go in your pocket right now – but in reality, you’re losing cash by doing that. Your employer has to top up pension contributions for eligible employees by law, and the Government provides tax relief. Opting out of your pension contributions means you’re missing free cash being paid into your pension!

  1. Set aside a small amount each month

Can you spare a tenner each month? That’s £2.50 a week. Maybe you can afford to siphon off £25 or even £50.

These small amounts may seem insignificant right now. However, time is your friend: small regular payments to your pension now will have time to grow. The longer you can leave money in your pension, the more time it has to grow!

A pension, like all investments, can go down as well as up. However, the longer you leave your cash in it, the more likely it is you can ride out the dips that can happen, leaving you with a comfortable retirement nest egg.

  1. Freelancers: use PensionBee’s Self Employed Pension

Freelancers and the self employed get a bad deal when it comes to pensions. They have to pay in their own earnings – and don’t get the benefit of employer contributions. You can still benefit from the Government’s tax relief, though.

PensionBee realises that self employed income isn’t always guaranteed. While many other pension providers require a set amount to be paid in each month, their Self Employed Pension is flexible. You can open a pension from scratch and pay in as little or as much as you can, at any time. No monthly requirements, or annual minimums. Find out more here.

  1. Consider a Lifetime ISA

Self-employed people can also benefit from a Lifetime ISA to top up their retirement income. You can pay in up to £4,000 per year and the Government tops up your balance by 25% – meaning you can save £5,000 a year. This can help you counteract the lack of employer contributions on a workplace pension.

You can open one any time from the ages 18-39, then continue to pay into it until you’re 50 – and access the tax-free money when you’re 60. So, if you open a LISA age 18 and save the full £4,000 a year for the full 32 years, you’ll save £128,000 PLUS receive a Government top-up of £32,000.

There are limitations: you can ONLY access the cash when you’re aged 60 or over OR as a house deposit for your first home (if buying through a first-time buyer scheme). If you take your money out before then, you don’t get the bonus and you pay a penalty fee, so you’ll get less back than you paid in. If you claim means-tested benefits, the amount in your LISA will be taken into consideration, even though you can’t access it without penalty.

A LISA can be cash or investments. The longer you have one, the better it is to opt for a stocks and shares one – as with any investment, your balance could reduce as well as increase, but over a long period of time you’ll likely see significant growth overall.

  1. Check your pension investments and risk appetite

Do you know where your pension money is invested? And how risky those funds are?

All investments come with risk. The idea behind pension investments, however, is to reduce risk the closer you get to retirement. In your 20s and 30s, you can opt for a high risk appetite portfolio – this means your investments could go right down, BUT have an opportunity to reap bigger rewards.

In your 40s, you may want to move to a moderate risk appetite. Then, in your 50s, consider transferring to a low-risk portfolio as you near retirement. The exact timings of when to do this depend on when you want to retire – the later you want to retire, the later you can shift to a low-risk portfolio.

Doing this can help mitigate some of the pension gender gap by maximising the opportunities for your investments to grow. Higher risk early in your pension plans means you can mitigate any dips in investment returns with growth periods.

  1. Getting a divorce? Check your pension entitlement

Not many women know that they could be entitled to a portion of their spouse’s pension earned during their marriage, should the marriage end in divorce.

This is particularly important to know if, for example, you’ve taken time off work to look after children while your spouse continued to work. You may have a claim on a portion of their pension.

Make sure you ask your solicitor about this when arranging financial orders during divorce proceedings to ensure you don’t miss out!

  1. Apply for pension credits during childcare years

If you’re staying at home to look after the children, make sure you apply for National Insurance credits. This means you won’t lose out on your State Pension entitlements while you’re not working.

If you’re a parent registered for Child Benefit for a child under 12 (even if you don’t receive it), you should automatically receive Class 3 National Insurance credits. If you’re not a parent but a family member looking after a child under the age of 12, and you’re under State Pension age, you can apply for Specified Adult Childcare Class 3 credits.

Those on Universal Credit automatically receive Class 3 credits. Those on Maternity Allowance automatically receive Class 1 credits, but if you’re on Statutory Maternity or Adoption Pay and don’t earn enough for a qualifying year, you need to apply for Class 1 credits.

For details about checking your National Insurance record and applying for credits, visit the Gov.uk website.

  1. Top up your State Pension now

Check your State Pension record online here. You may discover you won’t have enough qualifying years by the time you reach State Pension age to receive the full weekly amount. Don’t panic!

You can top up your National Insurance contributions for your State Pension if you don’t have enough qualifying years. Even if your retirement is a long, long way away, if you’ve missed a few years of National Insurance (such as if you haven’t worked for a period of time without National Insurance credits applied), you should consider topping up the years now. It’s cheaper to do it earlier rather than later!

Age UK have a useful leaflet with more information about the State Pension.

  1. Ask for a promotion or pay rise!

Something we often don’t consider – especially after businesses have had such hard times in the past year – is asking for a pay rise.

However, men are far more likely to receive a pay rise than women. It could be that you’re doing the same job as a male counterpart, with the same experience level, but receiving less pay. Not only does this affect your direct income, but it also impacts the employer contributions of a workplace pension!

In fact, in 2019, 55% of women had NEVER asked for a pay rise. A huge 64% of men were willing to ask for a pay rise – and when they did, they received a greater increase than women, with women receiving an average of up to 2% rise while men received an increase of 5% or greater.

If, after a tough year for business, you don’t feel comfortable asking for a pay rise, ask if you can increase the employer contributions on your workplace pension. You should, of course, ask for the full pay rise you feel you’re entitled for – but if you think it’s not the right time to ask, a pension contribution increase could work as a compromise.

  1. Consider finding a passive income stream

Now, with the gender pay gap still in full swing, we’re not massive fans of saying ‘Find more work to make up for the pay gap!’. However, the reality is that, until equal pay really is equal, women may have to find other ways to top up their retirement nest egg.

A passive income stream doesn’t take a lot of extra weekly effort, once it is set up. For example, selling online courses for a skill you’re particularly adept at only require the time to create the course and some marketing. Once it gains momentum, it will create a side income stream with little effort.

Or, for another idea, set up a blog and make money from the advertising revenue. This, or any other side hustle, must be registered with HMRC if you make more than £1,000 a year from it.

However, setting up an extra income stream like this and automatically siphoning off your profits into your pension will help build your retirement nest egg with ease! You won’t notice your pension growing if you set up automatic money transfers between your bank account and pension pot – but when you check it as you reach retirement it’ll give you a nice surprise!


Make sure your pension is in the right place

One final way to make sure you’re getting the most out of your pension – despite the gender pension gap – is to check your investments are in the right place.

If you’ve taken time off for childcare, family caring responsibilities, or even to relocate for your new spouse, it’s likely you’ll return to a new job. And a new job means a new workplace pension! It’s easy to realise you have a handful of pension pots, all with nominal amounts in – that fees are eating into year after year.

Consolidating your pensions into one (or two) pots will usually make your retirement nest egg work harder. Compare platform and management fees, shop around, and find out where to transfer your pension into one place.

It’s worth pointing out here that it’s not ALWAYS the best thing to do, especially if you have a final salary pension as you could lose the benefits associated with this type of pension. Before you move your money around, seek independent advice from a specialist pensions adviser. The fee of such advice will MORE than pay for itself by making sure your investments go to the best place possible for your circumstances and retirement goals!


* PensionBee report page 3

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Your capital will be at risk.



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2 years ago

Great info on this.

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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