Every year, Equal Pay Day serves as a reminder of the wage disparities between men and women. Falling on 20 November, it marks the day in the year when women effectively stop being paid due to the gender pay gap1.
But the implications of the gender pay gap stretch far beyond our working years. The pay gap is a significant contributor to the gender pensions gap, leaving many women with smaller pensions and less financial security in retirement.
Our analysis of the most recent Office for National Statistics data2 shows that, on average, men’s pension wealth is 90% higher than women’s. The gap becomes even wider among those in their 60s, when men’s pension wealth is 133% higher than women’s. This mirrors the way the gender pay gap widens with age, as women tend to take on more unpaid work to care for children and older people3.
However, the gender pensions gap is not a foregone conclusion. There are things you can do to close the gap and secure the retirement you deserve.
Here are five steps to consider.
1. Start early
One of the most powerful tools in your financial arsenal is time. The earlier you start saving for retirement, the more time your money has to grow and benefit from the power of compounding. This is when you earn returns on the money you invest as well as on the returns themselves. Even relatively small amounts can balloon into sizeable sums over time.
Even better, when you save into a pension you get tax relief from the government. For every £80 you save into your pension, the government adds £20, boosting your contribution to £100. If you’re a higher or additional-rate taxpayer, you can claim back an additional £20 or £25, respectively, via your self-assessment tax return.
Read our earlier article to see how tax relief boosts long-term savings.
2. Pay in as much as you can
The more you contribute to your pension, the larger your retirement pot will be. While it’s important to balance your current needs with your future goals, try to contribute as much as you can afford. Remember, you’re not just saving for retirement; you’re investing in your future self.
The chart below shows how much a basic-rate taxpayer could have built up in their pension after 40 years, based on two different monthly savings amounts. For simplicity’s sake, we assume their contributions stay constant over time.
If they saved £200 a month into their pension (which is £250 a month including tax relief) they could end up with a pot worth just over £370,000 after 40 years, assuming an investment return of 5% after fees. But if they saved £250 a month (£313 a month including tax relief) their pot would be worth over £460,000.
In other words, a £50 monthly increase boosts their pot by £90,000!
Small increases in pension contributions can have a significant impact
Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5% after fees.
Source: Vanguard calculations.
Read our earlier article to find out how much you might need to save for retirement.
3. Maximise employer contributions
Some employers will pay more money into your pension if you increase your own contributions too, usually up to a certain percentage. This is essentially free money and it can make a significant difference to your retirement pot.
If you’re not sure where to find this information, speak to your HR department.
4. Make up any gaps in your contributions
There may be times when you’re not able to contribute to your pension, such as during career breaks or periods of part-time work. If you go on maternity leave, the amount you pay into your workplace pension will be based on your maternity pay, not your usual pay, which means you might pay in less. These gaps can significantly impact your retirement savings, but there are ways to make up for them.
If and when you’re able to (such as when you return to work), consider using bonuses, financial gifts or inheritances to top up your pension. Remember, you’ll get tax relief on your contributions, which can really help to supercharge your pension pot. Most people can get tax relief on pension contributions of up to 100% of gross relevant earnings, capped at £60,0004.
It’s also worth thinking about your state pension. The amount of state pension you receive in retirement is based on the number of years you’ve paid national insurance (NI) or how many years of NI credit you have. If you have a child who is under 12 and you’re not working, claiming child benefit can help you qualify for NI credits, so you don’t have any gaps in your NI record. These credits will count towards your state pension5.
5. Track down lost pensions
It’s not uncommon to lose track of pensions, especially if you've changed jobs frequently. According to the Pensions Policy Institute6, there are 3.3 million lost pension pots in the UK. Among women, those lost pensions are worth an average of £6,900.
Taking the time to track down any lost pensions could make a real difference to your retirement. The government’s free pension tracing service can help you find contact details for workplace and personal pensions.
Once you’ve found your pensions, you might want to consider consolidating them with one provider. Combining your pensions can make it easier to manage your savings and potentially reduce fees. However, it’s important to check for any exit penalties or loss of benefits before transferring.
Remember, every small step counts. Don’t be discouraged if you can’t do everything at once. The most important thing is to start and keep making progress. By investing in yourself, you can look forward to a brighter future.
1 Fawcett Society. Equal Pay Day marks the day in the year when, based on the gender pay gap, women overall in the UK stop being paid compared to men. The gender pay gap is the difference between the average pay of men and women within a particular group or population.
2 ONS Wealth and Assets Survey, 2018 to 2020.
3 Jemima Olchawski, chief executive of the Fawcett Society.
4 For more on what counts as ‘relevant earnings’ that can earn tax relief when used to fund a pension, see the HMRC Pensions Tax Manual. Your annual allowance might be lower than £60,000 if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website. If you’ve flexibly accessed your pension, you can work out what your alternative annual allowance is here.
5 View more information on the state pension.
6 Pensions Policy Institute, ‘Lost Pensions 2024’.
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