By Dale Critchley, Workplace Policy Manager, Aviva
People still do not believe that allocating time to understanding their pension better will help in planning for a more comfortable retirement.
Those in Defined Benefit (DB) schemes might get away with limited engagement. There are also some in Defined Contribution (DC) schemes who work full-time for 40 years, paying into a scheme with a higher default contribution level, and who might also get away without having to engage too much. The chances are, these are more likely to be men.
The larger share of caring responsibilities still overwhelmingly falls to women with many opting to work part-time , often meaning the default position is less likely to deliver a good retirement outcome. Decisions made to balance caring responsibilities and careers require decisions to be made about pension saving. The benefits of engagement are therefore arguably greater for women.
There is an argument, for people who live together, that total household pension wealth matters more than individual pension wealth. However, this can create financial dependency on a partner. YouGov found almost one in three (29%) women in a relationship were at least somewhat financially dependent on their partner, a figure which rises to 43% among part-time workers.
Aviva data shows this gender pension imbalance can persist into retirement with women aged 60 to 65 having pension pots which are on average just over half (57%) the size of men’s pots at the same age .
The obvious risk for women in this situation is if their relationship should break down. Aviva has found one in seven people (15%) didn't realise their pension could be impacted by getting divorced .
While you might think the simple solution would be to share pensions as part of a divorce or dissolution of civil partnership the same way as any other wealth but, somewhat surprisingly, it does not happen by default. Aviva found a third (34%) made no claim on their former partner's pension when they divorced.
A little pension engagement can go a long way.
The first step is to understand appropriate contribution levels and, that automatic-enrolment (AE) minimums are unlikely to be enough. A good rule of thumb is to ensure total pension contributions – employee and employer – amount to at least 12% of pay.
Many employers offer higher levels of contributions through a matching mechanism, but employees automatically enrolled on lower levels might be leaving these additional contributions on the table. Simply understanding that more pension contributions might be on offer could add thousands of pounds to a retirement pot.
Employees should take advantage of the online planning tools which are available from most pension providers. Keep in mind though these do not always consider career breaks and part-time work.
It is good to see the progress the government is making to ensure fairer pensions. One of the biggest changes the government could make is to remove the lower qualifying earnings threshold (LET). It has the potential for the biggest impact on closing the gender pension gap because it would mean women in a pension scheme getting a contribution from the first pound they earn.
Engagement is the key to unlocking better retirement outcomes for women. Understanding the impact of part-time working and career breaks, the important role of employer contributions, and the simplicity of ticking the right box on a divorce settlement are the first steps in levelling-up pensions for women.
Sources: Contains public sector information licensed under the Open Government Licence 3.0.
Gov.uk | 30 Jan 2033 | Minister unveils plans to start closing the pensions inequality gap
Gov.uk | 30 Jan 2023 | Understanding member engagement and workplace pensions
House of Commons Library | Women and the Economy | 02 March 2021 | Women made up the majority of part-time employment (38%), compared to 13% of men.
YouGov | 05 May 2021 | One in three women in relationships are financially dependent on their partner
Aviva data | Jan 2023 | Aviva Workplace Pension Data: Percentage difference in total workplace pension pots in January 2023, men versus women, by age group, based on a sample of 5,004,064 workplace pension plans.
Aviva | 03 May 2022 | Thousands risk pension poverty after divorce
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