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Small steps can help close £70k gender pensions gap

Published: 28 October 2020

  • Modelling done by Nest suggests the average woman working full-time in the UK could have a £41,000 gender pension gap at retirement. Based on the overall average UK wage, which includes part-time work, this gap widens to more than £70,000[1].
  • Modelling shows small steps like paying an extra £2.50 into your pension each week could grow it by £13,600 by the time you retire. Starting saving at 18 could add as much as £12,500 to your final pot.
  • Nest says employers that are committed to helping their workers save and sharing the tools and information they need to do so are a big part of the answer.
  • "The wellbeing of our colleagues is our number one priority” Vicky Metcalf, Inclusion and Diversity Director, Aldi

Automatic enrolment has revolutionised pension saving in the UK, but women still end up with significantly less in their pension pots than men when they retire. New modelling from Nest, the largest UK pension scheme by number of members, suggests a woman on an average UK salary could end up with as much as £72,500 less in her pot after a lifetime of saving. Nest has produced a report looking at how, working together, employers and savers can help fill in the pensions gender gap – even in the face of the challenges of the Covid-19 crisis.

Women face extra challenges when saving for retirement. Systemic issues – like greater numbers of women working in lower-paid[2] and part-time jobs[3] – mean they have less to put into their pension. Women also live longer than men – on average by 3.7 years[4] – so need their pension savings to last longer.

Covid-19 has had a significant impact on people’s financial situation and their outlook. When surveyed at the height of lockdown in June, women saving with Nest were more likely than men to say they were only just about managing to make ends meet financially (34 per cent vs 25 per cent) and nearly half (49 per cent) felt the pandemic will have a significant impact on their finances[5].

Despite this, there are small steps women and their employers can take to help them keep financially fit:

- Most workers are entitled to opt into their workplace pension from age 18 and benefit from both employer contributions and tax relief, effectively doubling contributions. Don’t wait to be automatically enrolled at age 22. If you’re lucky enough to get a job, make sure you’re getting your pension rights straight away and don’t lose out on four years of free money. 

  • Saving into a workplace pension from age 18, with the benefits of employer contributions and tax relief, rather than waiting until you’re auto-enrolled four years later, could add as much as £12,500 to your final pot[6].

- A small sum added to your pension pot early can make a big difference down the line.

  • Even adding as little as £2.50 a week extra to your pot could grow it by £13,600 by the time you retire, including money from the government as tax relief[7]. With digital schemes like Nest you can log in and set up additional regular payments easily.

- Find out whether your employer will match your pension contributions and if they do, pay in as much as you can afford. Understanding what’s on offer from your employer could make thousands of pounds worth of difference and employers can help by clearly advertising these benefits and regularly reminding their workers of them.

  • If your employer matches your contributions up to five per cent of your salary, which is the minimum you’ll be paying in including tax relief if you’ve been auto enrolled, you could have an additional £22,300 in your pot by the time you retire without having to pay anything extra in yourself[8].

- During parental leave, many workers are entitled to full employer pension contributions based on their usual salary rather than statutory pay. When considering maternity leave, knowing your rights will help you keep as much in your pocket as possible and employers can help by clearly advertising these rights to workers.

  • Based on the average salary, steady employer contributions during two twelve-month maternity breaks could mean an extra £1,700 in women’s pots[9].

Nest’s Director of Strategy and Corporate Affairs, Zoe Alexander, said:

“Women face systemic challenges in saving as much as men do for their retirement – these begin at the start of their working life and have a ripple effect throughout their life as they juggle conflicting priorities, lasting well into retirement. It looks like the ongoing impact of Covid-19 could also disproportionately affect women and may further undermine their pension savings potential.

“In times of financial instability, where every penny counts, pension contributions can seem like a luxury. But starting early and continuing pension contributions, if you possibly can, is the best way to futureproof your financial wellbeing in retirement.

“This is why we’ve produced this report – we want to make sure women have the right information about what they’re entitled to from their employers and their pension scheme, and we want to help our employers support their staff. Employers like Aldi that are committed to helping their workers save and sharing the tools and information they need to do so are a big part of the answer. 

“Working together we can help fill in the pensions gender gap – and ensure building back better includes building a better pension pot.”

Vicky Metcalf, Diversity and Inclusion Director at Aldi, said:

“The wellbeing of our colleagues is our number one priority, and we believe it is imperative that everyone within our business is aware of the importance of preparing for the future, as well as the options and support available to them regarding pensions.”

NOTES TO EDITORS:

1 From ASHE Data:

Median UK SalaryMedian UK SalaryMedian UK Salary

Male - Full time: £32,882
Female - Full time: £26,774
Male - All (including part time): £30,369
Female - All (including part time): £19,563

Pensionable salary ( see earnings threshold)

Male - Full time: £26,642
Female - Full time: £20,534
Male - All (including part time): £24,129
Female - All (including part time): £13,323

Monthly contribution

Male - Full time: £178
Female - Full time: £137
Male - All (including part time): £161
Female - All (including part time): £89

Annual contribution

Male - Full time: £2,131
Female - Full time: £1,643
Male - All (including part time): £1,930
Female - All (including part time): £1,066

Retirement pot (based on assumed monthly contribution of 8% of pensionable salary from age 22 toretirement at 68, with assumed investment growth, less fees and charges*.)

Retirement pot (based on assumed monthly contribution of 8% of pensionable salary from age 22 toretirement at 68, with assumed investment growth, less fees and charges*.)

Male - Full time: £178,871
Female - Full time: £137,863
Male - All (including part time): £161,999
Female - All (including part time): £89,449

2 Chartered Insurance Institute, Insuring women’s futures’ manifesto: the full report (January 2020), insuringwomensfutures.co.uk
3 ONS, Gender pay gap in the UK, ons.gov.uk/employmentandlabourmarket/ peopleinwork/earningsandworkinghours/bulletins/ genderpaygapintheuk/2019
4 ONS, National life tables, UK: 2016 to 2018 (September 2019), ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2016to2018
5 Nest’s Voice of the Customer research was conducted by Nest in the week of 15 June 2020. It surveyed 1,737 Nest members. The data is weighted by registration and contribution status as well as gender and age to be reflective of the Nest membership. Nest has 9.2million members and representative surveys of Nest’s members are broadly comparable to surveys of the general working population.
6 Based on 8% of pensionable salary from the median UK women’s wage from 18-22, with assumed investment growth, less fees and charges*
7 Based on weekly contributions of £2.50 from 22-68, with tax relief and assumed investment growth, less fees and charges*
8 Based on a total of 10% of pensionable salary from the median UK women’s wage, with assumed investment growth, less fees and charges*
9 Based on earning the median UK women’s wage, with continued employer contributions of the legal minimum 3% of pensionable salary over two twelve-month maternity breaks and assumed investment growth less fees and charges*

* Investment growth assumptions are based on the stated investment objectives of the Nest default investment fund and are calculated net of Nest’s 0.3% AMC and 1.8% contribution charge. The default fund aims to outperform inflation (CPI) over the long term after all charges and to outperform CPI by 3% after charges during the growth phase.