The UK government has reiterated its commitment to reducing the gender pensions gap. With retirement-age women still having a third less in savings than their male counterparts, the government is intent on tackling this disparity. According to recent statistics, there is still a whopping 48% gender gap in pension wealth. This gap is deeply alarming given its implications for the long-term financial stability of older women. With the state pension age increasing, having enough to retire on is now vital for many. Understandably, the government is under pressure to act quickly and fill this gap.
Women of retirement age between 55 and 59 with savings have an average pension pot of £81,000. In comparison, their male counterparts by age 30 have saved an average of £156,000. This difference reveals a deeper trend affecting both pension contributions and retirement planning overall for the UK workforce. Thankfully, experts are already stepping up to these challenges with remarkable urgency. In doing so, they’re calling on lawmakers to amend existing pension plans and contributions for a fairer financial future for all.
Current Pension Landscape
The current required minimum contribution to work place pensions is 8%. This is made up of 4% that employees put in themselves, 3% from employers, and 1% through government tax relief. Most national experts will tell you that this is not enough of a contribution for someone to have a good retirement income. The UK government brought in automatic enrolment in 2012, an ambitious policy aimed at making sure all eligible workers save adequately for retirement. This system mainly affects people aged 22 to state pension age. It is aimed at workers who earn over £10,000 annually in one job and do not have access to an appropriate workplace pension.
Despite these measures, many workers remain uncovered. All the women who work multiple part-time jobs or women who earn under £10,000 a year are currently cut out by the threshold. This purposefully locks them out of the pension system. For one, self-employed people face additional hurdles. Yet right now, only one fifth are paying into a private pension – meaning more than three million have no savings for retirement at all.
“The UK government is committed to both monitoring and narrowing the gender pensions gap.” – UK Government
The Challenge Ahead
The state pension age is set to rise from 66 to 67 between 2026 and 2028. This amendment would result in dire economic consequences for countless citizens by postponing their access to state dollars. This would hit women—who on average, have far less saved for retirement—especially hard. The state pension often represents the vast majority of an individual’s income in retirement. Together these developments increase the imperative for adequate personal savings.
Ministers are still in open, ongoing conversations about raising the auto-enrolment threshold. They suggest reducing the earnings threshold and covering younger workers between 18 and 21. These types of incentives would be more friendly to lower earners and help them start saving at a younger age in their working lives. These conversations are long overdue and desperately needed. Folks are starting to understand that our current systems may not be up to the task of guaranteeing the retirement security of all tomorrow’s retirees.
“A faster increase is definitely on the cards.” – Rachel Vahey, head of public policy at AJ Bell.
Innovative Solutions
The Lifetime ISA gives people of all backgrounds, including the self-employed, the opportunity to save more towards buying their first property or retirement. On top of this, they get a return of a 25% government bonus on their contributions, up to £1,000 a year! This new program would be intended to encourage savings especially among younger workers and those who cannot benefit from traditional pension plans.
This is why industry leaders have been stressing the need to engage consumers with the right financial products to drive growth in overall retirement savings. Nikhil Rathi, chief executive of the UK’s Financial Conduct Authority, noted that ensuring individuals can access suitable retirement plans is vital for long-term economic stability.
The dialogue surrounding these issues continues as both policymakers and financial experts strive to create a more inclusive and effective retirement saving landscape in the UK. With ongoing scrutiny of current practices and increasing calls for reform, there is hope that progress will be made toward closing the gender pensions gap.