Mind the Gap! How to close the pension gender gap

We’ve all heard of the gender pay gap – the chasm between men’s and women’s earnings – but are you aware of the pension gap? According to the Pensions Policy Institute, a girl would need to start saving from three years old to match the pension of a man who began at 22. So how can we close the gap?

The average woman in her late 50s has approximately a third of the retirement savings of an average man. As a result, women are far more likely to struggle financially in retirement or will need to keep working in later life. In fact, research by Now Pensions found that 67% of pensioners in poverty are women.

The good news is the pension gap is narrowing – it shrank by 7% between 2006 and 2020, according to official figures. But that isn’t fast enough. Generations of women are facing a substantially poorer retirement than men.

In this article we cover:

• What is the pension gender gap?
• Why is there a pension gap?
• Is the pension gap closing?
• How can you close the pension gap?

Discover our best ready-made personal pensions

What is the pension gap?

The pension gap is the difference in pension savings, and then retirement income, between the genders. Research shows that men have substantially larger pension pots than women as they approach retirement. This results in a large disparity in retirement income between the genders.

At the start of your career, the gender pension gap doesn’t exist. After all, we all start with an empty pension pot. In our early 30s the gender pension gap actually shifts in the other direction – for those eligible for auto-enrolment – with women having larger pension savings than men.

After 35 it all changes. There is a 10% gender pension gap between the ages of 35 and 39. By the time we reach our late 40s, this has expanded to a huge 47%, according to the government’s Gender Pensions Gap report.

The gender pension gap leaves women facing some stark choices:

• retire with a much smaller pension than a man
• pay 6% more into your pension than your male counterparts through your working life
• start your pension when you are just three years old, in order to retire with the same amount

“In 2024, 54 years after the introduction of the Equal Pay Act, this seems a strange predicament in which to find ourselves. But the labour market and social conventions aren’t moving quickly enough to help most working women today,” said Rachel Vahey, head of public policy at AJ Bell.

Are you a Sunday Times subscriber? Read more on their Plug The Pension Gap campaign.

Read more: How much should I pay into my pension?

Why is there a pension gap?

The main cause of the pension gap is the gender pay gap. Most of us contribute a percentage of our salary into our pension throughout our working lives. As women get paid less than men this means they are paying less into their pension pot too.

But other factors also play a part, including career breaks and whether we work part-time or full-time.

“Data shows that early in their career, women contribute to their pensions just as much as men,” said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. “But the pension gap really starts to hit once they leave the workforce to take on caring responsibilities.”

“If they do return to work, it is often on a part time basis which hits the amount they can pay into their pension and the gap starts to widen.”

The Equal Pay Act 1970

The gender pay gap should no longer exist – the Equal Pay Act 1970 states that we all have the right to be paid the same as someone in the same job regardless of sex. But, eight out of ten firms still pay their male employees more than women. 

In their early 20s women typically earn 3% less than men.

“This increases sharply to 10.3% for those in their 40s, as more women move to part-time hours or stop working altogether after having children,” said Vahey.

“Add in the crippling cost of childcare, and often having to meet inflation-busting rises in food and energy bills, and it’s easy to see how women end up with little left over at the end of the month to save.

“Our research showed 41% of men pay more into their pension than the minimum requirement, compared to only 27% of women.”

The average woman has a 10-year career gap due to childcare and other factors, according to Now Pensions. That results in £39,000 in lost pension savings.

Tax-free childcare UK: Are you eligible?

Is the pension gap closing?

Yes. The pension gap has been steadily shrinking for the past 20 years but it is at an almost glacial pace. The gender pension gap was 42% in 2006, this had closed to 35% in 2020. The biggest influence on this has been the introduction of auto-enrolment for workplace pensions.

Auto-enrolment began in 2012 and means that all eligible employees are automatically enrolled into their workplace pensions unless they opt out. This has led to a vast increase in the number of women saving into a pension.

Where employees are eligible for auto-enrolment, 91% of women pay into a workplace pension compared to 89% of men. And those women are saving more – an average £2,700 a year compared to £2,430 contributions by men.

While auto-enrolment helps, it can’t singlehandedly close the pension gap.

“It’s not so much a pension issue as a wider workplace one,” said Morrissey. “We need to see wider reform with the provision of more flexible working arrangements and affordable childcare that enables women to get back into work and build their pensions.”

Read more: Money’s tight, should I temporarily pause my pension contributions?

How to close the pension gap

There are plenty of things we can all do to boost our own pension savings but when it comes to closing the pension gap, that needs tackling at a government level. Policies that support women who are juggling careers with caring responsibilities would improve both the pay divide and the pension gap.

But there are things you can do to close your own personal pension gap. This includes:

• Start your pension early and save as much as you can afford to
• Avoid taking breaks from pension contributions
• Had a child? Sign up for child benefit in the mother’s name. That ensures your continue to build your state pension entitlement while you are out of the workplace

The pension gap and children

When you have children, your pension takes a big hit. But there are two ways you can minimise the damage. 

While you are pregnant, try to increase how much you pay into your workplace pension. This will help mitigate the effect of lower contributions while you are on maternity pay.

Plus, if your employer matches your contributions then they must pay in the same amount while you are on maternity leave, even if the amount you pay in falls.

If your partner can afford to, they could also cover your pension contributions while you are taking care of your children. Anyone can pay into someone else’s private pension.

If you aren’t earning, they can pay up to £2,880 a year into your pension – which will be boosted to £3,600 with tax relief. Doing this could have a huge impact on your own personal pension gap.

“There is a long road to pensions equality. Closing the gender pay gap would certainly help,” says Vahey. “But many women just don’t engage with pension savings.

“Government, regulators and the pensions industry need to find ways of reversing this trend and getting women thinking about their financial future.”

Read more: Eight ways to boost your personal pension