Women’s retirement savings slashed due to “part-time pensions penalty” making them £106,000 worse off in retirement

• Women’s pensions wealth is less than one third of men’s when they reach retirement
• Women typically have £51,100 compared to men’s wealth of £156,500 by their 60s
• Conversely there are now a higher proportion of women in the workforce than ever before

A new report, Facing an unequal future – closing the gender pensions gap, published today by NOW: Pensions based on research by the Pensions Policy Institute reveals working part-time to balance caring responsibilities has the biggest impact on women’s ability to save for their future resulting in a 47% reduction in women’s pension wealth compared to men by their late 50s. This has a bigger impact than the gender pay gap, which cuts women’s pension savings by 28%. Women currently on average earn approximately 18% less compared to men.

By their 60s, women typically have £51,100 in their pension – just one third of an average man’s £156,500 pot. This is compounded by the fact that women live on average 3.7 more years than men meaning their pension needs to last longer. The analysis shows that in order for women to draw the same pension income throughout their retired lifetime, they would need to have saved around 5% – 7% more saved than men by retirement age.

The part-time pensions penalty
While the good news is that the proportion of women working is now 71.4% – which is the highest female employment rate since records began in 1971 – 41% of those were working part-time in the last quarter of 2018, compared to 13% of men.

A part-time salary might mean they don’t meet the £10,000 a year threshold in a single job for to be auto enrolled into a pension scheme – causing them to miss out on saving for their retirement and receiving employer contributions.

Research* conducted with part-time working women by NOW: Pensions revealed that worryingly three in ten part-time workers don’t believe that their part-time hours will affect their pensions pots. Two in five (41%) part-time workers accept that they’ll have less saved, while others are combatting the shortfall by working longer (18%) or planning to save more in the future (11%).

The most common reason (34%) for women working part-time is to allow them to balance work with looking after their children. Unsurprisingly, this number is highest among young women (55% among 18-34-year olds and 46% among 35-54-year olds).

The report highlights that biggest harm to women’s pension wealth frequently occurs in their 30s. This is the typical age where women are likely to take time off caring for children. However, many women in their 50s are moving to part-time work to look after their own parents or grandchildren, thereby falling even further behind their male counterparts in retirement savings.

Joanne Segars, Chair of Trustees NOW: Pensions said“Pension saving can be difficult, especially for women. Not only are women typically paid less, but they are much more likely to work part-time or take time out of the workforce to care for children or elderly relatives. This time out of the workforce has a huge impact and the part-time pensions penalty can’t afford to be ignored.

“Policy and regulation around saving for retirement need to change to better reflect the changes in the workplace and society. Small changes to auto enrolment could make a big difference for women but to really to bridge the gap more needs to be done to help Mums remain in the workforce.”

Sam Smethers, Chief Executive, The Fawcett Society said“Women face a double jeopardy. They both carry more risk throughout their lives and are less able to take action to protect themselves.

“The shocking pensions gap that women experience is a result of a lifetime of income and workplace inequality. If we introduced a carer’s top up for pension contributions and lowered the threshold so that more low paid women in part-time work could benefit, that could make a real difference.”

Five-point plan for fairer pensions
1. Removal of the £10,000** auto-enrolment trigger to get more women into auto-enrolment – this would bring an additional 1.4 million women in pension saving.

2. Auto enrolment contributions on every pound of earnings – this would improve pension part-time workers who are more likely to be women. This would increase pension wealth by 140% at retirement.

3. The introduction of a family carer’s top up – women taking time out to care are compensated in the State Pension by State Pension credits, however, they miss out on auto enrolment. The family carer’s top up would see the government pay the equivalent of the employers’ contribution at National Living Wage level into women’s pensions who are taking time out to care. This would equate to approximately £820 per year and would boost women’s pension outcomes by 20%. The family carer top-up can close around half of the pension wealth gap created by taking time out of work to care for family.

4. Ensuring that pension funds are always considered in divorce settlements – approximately 10% of men and 14% of women in their early 60s are divorced. The median pension wealth of divorced men and women by retirement is £103,500 and £26,100 respectively. These figures compared to the population indicate a pension wealth reduction of a third for men but a half for women, signifying a greater impact of divorce for women than men.
Although pension pots can often be the second most valuable asset when people are going through a divorce, they are often overlooked, with people paying more attention to property assets.
In 2018, there were 118,142 divorces but only 4,632 pension attachment orders were made by the family courts.

5. Greater action on the availability and cost of childcare to enable those that want to return to work
Despite tax changes that help families with childcare costs, prices continue to rise. The Family and Childcare Trust reported in 2018 that childcare prices for children under three had risen above both inflation and wages in the previous year. Costs grew by 7% to £122 for 25 hours per week, equating to £6300 per year. Analysis of freedom of information request data by Insurer Royal London shows the high cost of childcare means working parents with toddlers pay more for childcare than their mortgage. A full-time nursery place for a child under two typically costs £1,065 a month, for example, while the average monthly mortgage repayment is £1,040 and the equivalent figure for renters is £833.

Notes to editors
*Research conducted online by Opinium between 25 January and 5 February 2019 with 1,000 female part-time workers and 250 female homemakers.
** Taken for the 2019/2020 tax year

More information

Samantha Gould – NOW: Pensions
Email: pressoffice@nowpensions.com
Instinctif Partners
Email: nowpensions@instinctif.com
Fenella Cuthbert – Cicero/AMO
Tel: 0207 947 5327