By Jessica Best
Without leading down a feminist tangent, we need to talk about the gender pension gap. For as long as women choose to have children, they will have smaller pensions than their male counterparts, as would any person who is the main child carer.
Commencing maternity leave, a mother would typically receive lower pay over the period which subsequently means fewer personal and employer pension contributions. The average woman sacrifices 5 years of her working life to raise children, which is a rewarding job in itself, however, during this time even more pension contributions will have been missed as well as the opportunity for career progression and subsequent pay rises that their male counterparts would have otherwise received.
Workplace pension contributions are the greatest benefit you can receive from your employer because it is effectively free money as a percentage of your salary, so stopping work to raise children unfortunately means you would be losing out on said contributions.
Personal pension contributions also benefit from automatic government tax relief, so again making these contributions you receive free money!
As per the age-old mantra of stocks and shares investments, making pension contributions early means they have the greatest opportunity to achieve long-term capital growth, of course you must remember this is not guaranteed.
One must also consider that women on average live 10 years’ longer than men, meaning they need larger pension pots to fund their retirement and any subsequent long-term care costs that may arise alongside.
What’s more, women are more likely to spend any income they do receive on their children, meaning they have minimal or no surplus income to put towards their retirement savings.
If you have a partner on parental leave or has reduced their work hours to raise your children, could you help them by making pension contributions on their behalf? Likewise, a pension contribution can be made at any age and you could commence a pension for a child or grandchild from birth to give their retirement savings a kick-start.
It is worth having these conversations now and understanding the importance of private pension provisions because the state pension will not provide enough for you to continue your current lifestyle in retirement and supporting female retirement provisions now gives them a chance to close their pension gap.
This article has been written as per current legislation of the 2022/2023 tax year.
Please note investments are not guaranteed, capital value can go down as well as up.
References: Phoenix Group and Insuring Women’s Futures, part of the Chartered Insurance Institute.