The Part-time Pensions Penalty

Glass with coins and a plant in it

While there are more women in work than ever, they are still struggling to save enough into their pensions pot to ensure they can enjoy a comfortable retirement.

There’s no doubt that saving for retirement is difficult. Life is expensive, and the financial commitments never seem to stop. We all know how important it is to put aside some money for our future, but it’s easier said than done.

There can be no good reason why women should be financially penalised for choosing to bring up their families and seek a sustainable work-life balance.

What’s more, it’s even harder for women to save than it is for men. Changes in our society, our communities and our workplaces have not been reflected in the current pensions system, meaning that half of the population are unlikely to have the funds they need later in life.

The maths doesn’t work for women

New research by NOW:Pensions and the Pensions Policy Institute shows that by their 60s, women typically have £51,100 in their pensions, just one-third of an average man’s £156,500 pot. This is made worse by the fact that women tend to live an average of 3.7 years more than men, and so need their pension to last longer.

The problem is simple: the sums just don’t add up. To draw the same pension income throughout their retirement, women would need to have saved around 5%-7% more than men by their retirement age. But given their working careers are shorter, and usually lower-paid, this is almost impossible for most women.

The damage to women’s pension wealth is done in their 30s

Thanks to the miracles of compound interest, what Einstein called “the eighth wonder of the world,” it pays to start saving early. Anyone who starts saving even a small amount in their 20s and 30s will likely end up with a larger retirement fund than someone who saves a much greater amount in their 40s and 50s.

That’s why the biggest harm to women’s pension wealth usually occurs at this stage of life. This is the time when women are most likely to take time off to care for children and move into part-time jobs, thereby missing out on the opportunity to save into a workplace pension. They are also unlikely to have the spare income to be able to boost their funds.

Change is needed, now!

There can be no good reason why women should be financially penalised for choosing to bring up their families and seek a sustainable work-life balance. Moreover, we all have a stake in finding a workable solution that better reflects our modern society and economy.

There are several ways in which the Government can help women save for their pensions earlier.

  • Removing the £10,00 trigger to get more women into auto-enrolment
  • Removing the lower earnings limit so contributions are earned on every pound
  • Introducing a family carers top-up
  • Ensuring that pensions funds are always considered in divorce settlements
  • Greater action on the availability and cost of childcare to enable those that want to return to work to be able to do so

You can read more about these potential policies.

Ultimately, the gender pension gap is created long before retirement and the remedies need to be focused on the times in their lives when the younger generations can most benefit from them.

Unless these actions are taken, too many women will continue to miss out on the pensions and the retirement that they deserve.