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Women have 35% smaller private pension wealth

Older couple sitting at kitchen table reviewing finances

More women are saving for a pension thanks to automatic enrolment, but the gender pensions gap persists. As a result, women are at greater risk of having less to live on in retirement or needing to work longer to build up more savings.

The overall difference between the size of men and women's private pension pots currently stands at 35% on average, but for some groups the gap is as high as 60%, according to a new government analysis.

Differences by pension scheme

Looking at the gender pensions gap by pension scheme type, those who are saving only in direct contribution (DC) schemes have the highest gap of 60%. This group is also the largest in size with 792,000 men and 575,000 women.

The second most common type of pension wealth is those with only defined benefit (DB) pension savings, which includes 423,000 men and 589,000 women. This group has a gender pensions gap of 44%.

The smallest gap is 34% among the 414,000 men and 321,000 women who have both DB and DC pension wealth.

'Motherhood penalty'

In terms of age, the pensions gap is smallest for those aged 35-39 (10%) and then increases to 47% for those aged 45-49. It decreases again in the later years of working life -- a similar trajectory to the gender pay gap which shows a relatively small gap until the age of 40 when it approximately triples due to different working trends of men and women.

Calculations by Interactive Investor show that women's average pension pot size would reach £80,960 between age 45 to 49 if their pension wealth continued to increase at the same rate as men from age 35 to 49, compared to £46,000 in reality.

This means that women effectively pay a £57,960 "motherhood penalty" on average in their 40s, as childcare costs and the gender pay gap kick in.

Small extra contributions add up

Alice Guy, head of pensions and savings at Interactive Investor, said that women have lower pension wealth than men at every stage, but a small gap often becomes an "unbridgeable chasm" for women in their 40s and 50s.

Guy explained that women often "bear the brunt of childcare and household chores" and are more likely to work part-time in their 40s. They also face some of the highest childcare costs in Europe combined with an increasing gender pay gap, making it harder for them to build pension wealth.

"When you're struggling to pay the bills, lifting your head up and saving for the long term can seem an unsurmountable hurdle, but it's worth remembering than even small extra amounts paid into your pension add up over time," Guy added.

"If you're older and your kids have flown the nest, then it can make sense to up your pension contributions."

Putting an extra £200 per month into your pension savings from the age of 50 could add up to £64,104 by the time you reach 67, assuming 5% investment growth.

Posted by Fidelius on June 12th 2023

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