A new report from Scottish Widows has revealed that younger women face a six-figure gender pensions gap.
The company’s findings, published to coincide with International Women’s Day, showed that a female saver can expect to have £100,000 less in her retirement pot thanks to time taken out of the workplace to raise children or care for family members.
She will typically save £2,200 annually during the first 15 years of her career, compared to £3,300 for a man the same age, according to the study. This means she would have to work 37 years longer to reach the same level of retirement funds.
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Women in their twenties not only tend to earn less than men (median salary at 25 is £26,100 for a man and £23,700 for a woman) but they also are less engaged about saving for their retirement, the report claimed.
More than half (56%) of men in their twenties save the recommended minimum of 12% of income, compared to 46% of women. Once taking time off to have children and some part-time working is factored in, this creates a major “gender pensions gap” by the age of 68, it said.
To reach the calculation, Scottish Widows assumes that a woman and man start working and saving 25, at the median salary for their age, and retire at 68. The man takes no career breaks, while the woman takes a total of 2.5 years of career breaks in her late twenties and early thirties, typically for maternity leave.
Both do some part-time work during their career, but the woman spends seven more years in part-time work than the man – 42% of women work part-time, compared to 13% of men. It then assumes both save a varying amount of their income throughout their career, which grows by 2% each year in real terms.
Jackie Leiper, managing director of workplace savings and distribution at Scottish Widows said the Covid-19 (Coronavirus) crisis would only make this situation worse.
“Women were already facing systemic challenges when saving for retirement. We know that young women have been some of the hardest hit by the short-term financial impact of the pandemic and this has only exacerbated the challenge of reaching pensions parity,” she said.
“At the same time, caring responsibilities and high childcare costs are keeping women out of the workforce, lowering their contributions and denting their pension pots.”
Scottish Widows argues that if women had better knowledge about the importance of pension savings in their twenties, this gap could be closed.
The company’s 2020 Women and retirement report urged the government to raise the default contribution to pensions so employees could save more, and for employers to continue to contribute a portion of salary at points when staff choose to opt out.
It also called for pensions auto-enrolment to be extended to the self-employed, and for the scheme’s minimum age to be lowered to 18 (from 22), so employees have a longer period in which to save for their retirement.
The report found that while the highest proportion of women are saving for retirement since it began its analysis, young women are still the most likely to fall behind men in terms of saving adequately for retirement.