Seven separate studies show that women aren’t saving enough for retirement
In the last year, at least seven studies have considered whether women are adequately preparing for retirement. When you take them altogether it is overwhelmingly clear that women, in every area of retirement planning, are not doing enough to ensure that they will have sufficient pension income.
The impact of auto-enrolment
It is unquestionably true that auto-enrolment has helped get more women saving for retirement. However, many lower paid or part time workers fail to earn the minimum £10,000 that will make them eligible for auto-enrolment.
While there are a record 14 million women now in employment, almost three-quarters of people in part-time work and 63% of those earning £7 an hour or less are women.
Portal Financial, an income drawdown adviser, warns that the situation facing women in retirement is alarming.
Jamie Smith-Thompson, managing director of Portal Financial, said: “Auto-enrolment is helping millions of people who otherwise would have had no pension provisions, but much more needs to be done to protect women.
The situation facing women in retirement is alarming”
“There was a time when they were able to rely on their husband’s pensions because they had been [stay] at-home mums, but with half of marriages ending in divorce and more women working, this is no longer an option.”
The gender gap is closing, but the divide remains open
There is some evidence that the gender savings gap is closing. The Scottish Widows Woman and Retirement report shows the gender gap narrowed from 9% to 5% in 2014, while insurer Prudential’s research suggests that the gender gap has diminished significantly, from 20 percentage points in 1996/97 to just 3 percentage points in 2012/13.
Despite the gap narrowing, pensions and life assurance company Aegon believes there is still a significant divide between men and women when it comes to retirement planning.
Our research shows that on average women contribute £125 per month to their pension – that’s just 45% of men’s average contributions”
David Macmillan, managing director at Aegon said: “Despite a recent report indicating that more women are putting away sufficient funds for retirement, Aegon’s Second UK Readiness Report highlights a significant gender divide. Our research shows that on average women contribute £125 per month to their pension – that’s just 45% of men’s average contributions.”
The readiness report found that on average women indicated that they have almost £9k less than men when it comes to the guaranteed income they’ve secured for retirement.
Compounding the damage
Women are also missing out when it comes to the state pension. According to research from Prudential, nearly one in five (18%) adults do not believe they will qualify for the full flat rate state pension of £155 a week, which is due to come into effect on 6 April 2016.
Almost a quarter (21%) of women believe they will miss out, compared with 14% of men. Women think they are less likely to make the equivalent of the 35 years of national insurance (NI) contributions needed to qualify.
Nearly half of those women who think they will miss out believe they will do so as a result of taking career breaks to raise children, although 20% say they will not meet the target due to long-term illness.
Nearly half of those women who think they will miss out believe they will do so as a result of taking career breaks to raise children”
Additional years can be bought in voluntary contributions for those who fail to clock up the necessary 35 years in employment, or can be credited to those who receive Jobseeker’s Allowance or Employment and Support Allowance. However, only 14 per cent of adults who believe they won’t reach 35 years in employment will make voluntary additional NI contributions.
Prudential’s research found that more than two thirds of adults expect to have worked for at least 35 years by the time they retire. Women believe they are less likely than men to reach this milestone, with 61 per cent believing they will reach 35 years, compared with 74 per cent of men.
The advice gap
Not only are women failing to save enough money, they’re also much less engaged with pensions and have less understanding about saving for retirement.
The Scottish Widows Women and Retirement report found that 11% of women have never seriously thought about paying into a pension and three in 10 say they never will. Even more worrying, just 15% said they fully understand pensions
Women aren’t turning to financial advisers either. The report also found that only one in 10 uses an IFA and only 37% of those have discussed pensions.
Women aren’t turning to financial advisers either”
Selectapension found that in 2014, men made up 73% of an adviser’s pension review activity, meaning only 27% of all 22-29 year old clients were women. This is a significant fall, as only last year women made up 43% of all cases.
Young British women (25-34 year olds), on average, are underestimating the pot they will need to fund their desired income in retirement by more than £400,000, according to research conducted by BlackRock.
When asked about annual retirement needs and expectations, on average 25-34 year old woman wants a household income of £29,000 per annum. However, the same age group believes the pot of money they will need to fund it is £142,000. In fact, around £555,556 is required to fund such an income.
Whilst young women are more realistic that the responsibility for their retirement lies with them, a worrying 64% have not started to plan for it financially.
Clearly the industry must do more to engage women around pensions saving and retirement. Otherwise, too many will fall through the cracks and be left without adequate funds to live on after retirement.