Recent discussions surrounding the newly established pension commission have unveiled significant shortcomings within the current pension framework, particularly affecting groups such as the self-employed, younger individuals, and women.
One major concern highlighted is the gender pension gap, which currently stands at a staggering 48%. Data from 2020 to 2022 reveals that individuals aged 55 to 59 have an average pension wealth of £81,000 for women, compared to £156,000 for men.
This disparity arises from various factors. Although auto-enrolment has improved pension saving rates among women, challenges persist. Women are disproportionately likely to take career breaks for family responsibilities, which often leads to lower wages upon their return, or pushes them into part-time roles that hinder career advancement.
This situation is not the fault of women themselves; systemic changes are necessary to enhance their access to flexible work arrangements and affordable childcare, which would aid their ability to return to the workforce and bolster their financial stability.
Nonetheless, there are actionable steps that women can take to mitigate the impact of this gap:
- Maintain Pension Contributions During Maternity Leave: If you go on maternity leave, make an effort to keep up with pension contributions. Those on statutory maternity pay must have their employers continue contributions at the same level, even if personal contributions decrease.
- Consider Partner Contributions: If you’re not working, it may be beneficial to discuss with your partner the possibility of them contributing to a pension on your behalf. A non-working spouse can receive contributions up to £2,880 per year, with the potential for a government tax relief boost to £3,600.
- Claim Child Benefit in Your Name: Ensure that you are the one claiming child benefit as it includes a National Insurance credit that benefits your state pension. Unfortunately, many women miss out on this due to their partners claiming instead or opting out due to the high-income child benefit tax charge.
The tax charge reduces the benefit as earnings exceed £60,000, leading some families to inadvertently forgo essential contributions to their future pensions. It’s worth noting that a new option exists to opt out of receiving child benefit but still gain the National Insurance credit, thus preserving future pension benefits.
Addressing the gender pension gap requires collective action and persistent advocacy for systemic reform. Through awareness and proactive measures, women can take steps toward securing a more equitable financial future.
