Can you close your gender pensions gap during economic difficulty?
Given the current economic climate, it’s likely many employees will want to halt their pension payments, but it’s important for employers to encourage them to continue contributing by helping them budget and manage their finances better.
While it’s natural for employees to be concerned about making ends meet now, they should be reminded they still need to make ends meet in the future and without a pension this will be hard to do.
Pension contributions are one of the best value savings vehicles when factoring in employer contributions and tax relief. For example, a 32-year-old on £30K a year paying 5% into their pension, with their employer paying 3%, would see their monthly contribution of £99 (including tax relief of £19.80) equating to monthly contributions of £158.40 into their pension.
There are no other savings plans where the government essentially gives free money in terms of tax relief, so keeping contributions going makes good financial sense.
Don’t stop paying in
For women, it’s even more important to keep contributing into a pension pot. Women typically earn less than men throughout their working lives as well as taking time out to care for a family, which hits how much they can save. While the gender pension gap has fallen slightly since 2019, a women’s pension pot is still only 33.5% of a man’s pension on retirement.
The best advice is to encourage younger women (and men) to start contributing to a pension as early as possible. Their investments will then have more time to grow. Despite finances being tight for many, understanding this could stop young workers from opting out of a company scheme.
Women on maternity leave or a career break to care for children under 12 should check their eligibility for national insurance (NI) credits using the UK Government website. This could help them get class 3 credits towards their state pension while they’re not working. If women plan not to work for a while to look after children over 12, they could consider using household finances to pay voluntary NI contributions each year they won’t be working. This would benefit their spouse in the future if they both have a full state pension to draw from and help protect their retirement finances if they ever divorce.
Here are some tips to keep employees contributing to their pension pot:
1. Explain how much state pension they will get
Most people who are some way from retirement have no idea how much the the state pension pays. Knowing this can help put future finances in perspective and raise awareness of the importance of continuing to save into a company scheme.
In 2022-23, the full level of the new state pension rises by 3.1%, taking it to £185.15 a week, or £9,627.80 a year. The Department for Work and Pensions Get to Know Your Pension website includes information about the state pension (including what to do about any gaps in contributions), practical tips about how to save more and a pension calculator.
2. Make clear what’s needed for a decent retirement
According to the Pensions and Lifetime Savings Association (PLSA)’s Retirement Living Standards, the minimum a single person needs in retirement is £10,900 a year, so the state pension gets people almost there. However, the PLSA says a moderate lifestyle requires £20,800 while a comfortable needs £33,600 a year.
3. Encourage them to manage their pension
There’s lots of information online about pensions, including what to expect in retirement and how to improve pension saving.
- Moneyhelper.org.uk offers impartial guidance backed by the government that can recommend further trusted support.
- Moneysavingexpert.com gives advice and tips on a range of financial issues, including pensions and future planning in the income and budgeting section.
- Which.co.uk – provides independent advice on pensions and retirement.
- PLSA.co.uk/Resources – an extensive resource section with practical tools and information.
4. They should talk to their employer or pension provider
For most people, saving into a workplace pension after they have automatically enrolled should mean they can expect somewhere between a minimum and moderate standard of living.
Employers or the pension provider can give employees more information about how much they are paying in from their salary, how much their employer is contributing and how much the government is contributing through tax relief.
Employees will receive an annual pension statement making these clear. Some pension providers will also have a website and some offer online calculators to help people understand how much they could have in their pension pot when they retire.
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