March is synonymous with International Women’s Day which took place on Tuesday 8th March 2022. The theme of this year’s International Women’s Day was #BreakTheBias, urging women’s equality and focusing on a “gender equal world”. Applying this notion to pensions, we will be looking at the gender pensions gap and offering tips on how you can try to avoid a pensions shortfall.
Historically the work pattern of women in the labour market has differed from men’s which has led to different pension values and much focus being placed on gender pension equality. There are numerous factors which have caused females to have less pension when it comes to retirement. The Institute of Fiscal Studies (2021) states there are 3 main drivers which can influence wealth in retirement:
- Labour market experience – Different genders may have different working patterns and different pay levels
- Saving rates – Different contribution levels made by women and men or their employers
- Investment strategies (applies to defined contribution schemes) – Different genders may invest in higher risk or lower risk investment portfolios.
With the introduction of auto-enrolment and the reform of final salary pensions to career average (CARE), large-scale changes have been made, however the impact of these may take years to become visible. As it stands, we are still witnessing a pensions landscape influenced by the labour market of previous decades.
Interactive Investor, the online investment service, recently reported that the gender pension gap begins when women are aged between 25 and 34, which is the typical age category for women who become mothers to have their first child. They state that the gap grows from women having 9% less in their pensions in the 25 to 34 year old age group compared to men, to 46% less than men by the time they reach age 55.
The World Economic Forum notes that the gender pension gap exists in almost all economies worldwide with factors such as career breaks, e.g. women are more likely to take child related leave, part-time roles and lower average salaries causing the issue. The World Economic Forum emphasises that work has to be done by governments and pensions leaders to advance chance in ensuring equality, however, suggests there are steps women themselves can take to ensure their own trajectory of financial security.
The NESPF suggests the following steps to ensure your pension pot is on track:
One of the main steps anyone can take to ensure financial security is to ensure an awareness of their own finances from as early in their career as possible. Avoiding financial matters and delaying open discussions with loved ones about money can be detrimental in the longer term. With the LGPS, the earlier you save, the more pension you will have at retirement so starting early can have a huge impact.
Our secure online portal, My Pension, allows you to track your pension and perform calculations to view its value under different circumstances. Even just an annual check can ensure you have the latest figure and are equipped for the retirement you hope for.
The LGPS also offers the option to pay more or less into your pension, depending on your financial circumstances. There are two flexible options to increase your pension, with APCs or AVCs. You can find out more about each of these here. You can also reduce your monthly pension payments with 50/50. 50/50 allows you to pay half the contributions and build up half the pension. This way, instead of opting out and saving nothing, you can continue to save for your retirement. More information on 50/50 can be found in our Reducing your Contribution page.
Child related leave
If you are off on maternity, paternity or adoption leave, you will continue to pay your basic pension contributions on any pay that you receive while you are off on relevant child related leave. During any period of relevant child related leave the figure used to work out your pension is your assumed pensionable pay. Your assumed pensionable pay is simply the pay you would have received if you were working as normal.
However, any period of unpaid additional parental leave will not count for pension purposes unless you choose to pay Additional Pension Contributions (APCs) to purchase the amount of pension lost during this period. If you wish to purchase lost pension and make the election within 30 days of returning to work* then the cost of the APC is split between you and your employer (you pay 1/3rd, your employer 2/3rds). If you make the election out with 30 days of returning to work then you will pay the full cost of the APC. APCs can be a useful option to top your pension up to cover the amount lost from your period of absence.
Another option that could be considered is flexible retirement. From age 55 and with your employer's permission, you can reduce your hours or pay grade and begin to draw some or all your pension benefits. This means you could enjoy some of the perks of retirement while continuing to earn an income, which you could potentially use to top up your pension. For more information on this click here.