Nest suggests that small steps can be taken to start to close the gender pensions gap
30 October 2020
Nest, the workplace pension scheme, has undertaken research that suggests that it would only take minor steps to work to start to close the gender pensions gap.
Some key findings of the research indicate that:
- The average woman who works full time in the UK could have a £41,000 pension gap upon retirement. When based on the overall average UK wage, inclusive of part-time work, the gap expands to over £70,000
- Modelling demonstrates that paying amounts as little as an extra £2.50 into a pension each week could increase it by £13,600 at the point of retirement. Those who begin saving at the age of 18 could contribute an additional £12,500 to their final pot
- A big part of the answer relates to employers who are committed in helping their workers to contribute more to their pension scheme, and who share the tools and information needed by employees to do this
Even though Automatic Enrolment changed the face of pension saving in the UK, it is still a fact that many women are left with substantially less in their pension pots than men at the point of retirement. The research, carried out by Nest, seems to suggest that a woman on an average UK salary will be left with up to £72,500 less in her pension pot after saving throughout the duration of her life. In order to address this, Nest collated a report, which assessed how, by working together, both employers and employees can help to bridge the pensions gender gap.
There are additional challenges for women in terms of saving for retirement. There are a range of issues, including the fact that more women work in lower-paid and part-time jobs, with less income to put towards their pension. Women also outlive men by, on average, 3.7 years, which means that their pension savings need to last longer.
Coronavirus has undeniably had a significant effect on the financial situation of many and will have changed their outlook for the future. In a survey carried out during June 2020, at the height of lockdown, more women (34%) saving with Nest than men (25%) confirmed that they were struggling to make ends meet financially. 49% of women stated that the pandemic has had a substantial impact on their finances.
Nest recommends a few small steps that women and their employers can take to help them financially:
- Automatic enrolment only takes place from the age of 22, but most workers have the choice to opt into their workplace pension from the age of 18 onwards. This means that if they ask to join the pension scheme from age 18, they will benefit from employer contributions and tax relief, receiving pension rights four years earlier than they would if they waited to be auto-enrolled. This could mean as much as an additional £12,500 in their final pension pot
- Small sums added to pension pots early could make a huge difference in the future
- If an employer will match pension contributions, workers should pay in as much as possible. Employees need to understand what’s on offer from their employers, so benefits should be clearly and regularly advertised. If an employer matches contributions up to five percent of salary, for example, then an additional £22,300 could accumulate in a pension pot by the point of retirement
- Many workers, when taking a period of parental leave, are entitled to full employer pension contributions based on their standard pay, as opposed to statutory pay. On the basis of an average salary, employer contributions during two maternity breaks consisting of 12-months could equate to an additional £1,700 in a pension pot.
The Director of Strategy and Corporate Affairs at Nest, Zoe Alexander, said:
“Women face systemic challenges in saving as much as men do for their retirement – these begin at the start of their working life and have a ripple effect throughout their life as they juggle conflicting priorities, lasting well into retirement. It looks like the ongoing impact of Covid-19 could also disproportionately affect women and may further undermine their pension savings potential.
In times of financial instability, where every penny counts, pension contributions can seem like a luxury. But starting early and continuing pension contributions, if you possibly can, is the best way to futureproof your financial wellbeing in retirement.
This is why we’ve produced this report – we want to make sure women have the right information about what they’re entitled to from their employers and their pension scheme, and we want to help our employers support their staff. Employers like Aldi that are committed to helping their workers save and sharing the tools and information they need to do so are a big part of the answer.
Working together we can help fill in the pensions gender gap – and ensure building back better includes building a better pension pot.”
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