How have women’s pensions fared over the last 100 years?
This year marks 115 years of International Women’s Day, but how have women’s pensions changed in that time? Susan Hope, business development director at Scottish Widows, takes us through in today’s Notebook
A short history of women’s pensions
#As someone who has a mother navigating her own complex retirement journey and a daughter about to face her own £100,000 gender pension gap, closing that gap is personal! I’m also right in the middle of my own retirement journey with two divorces under my belt, a career break and periods of part-time work to boot – so am a classic example of all the contributing factors to the massive six figure gap women are often faced with.
It’s been 115 years since International Women’s Day launched and the landscape for women’s retirement finances has changed drastically over the last century. The origins of income provision in retirement can be traced back to the Old Age Pensions Act of 1908. This was available to women and men over 70 years old, though there were significant limitations, not least that the payments were below the standard poverty line.
In 1940, in line with improved longevity, health standards and equality between men and women’s economic roles, the state pension age was lowered to 60 for women. In 1995, the Pensions Act brought this up in line with men to 65 years old with the aim of enhancing future pension entitlement of many women.
Today, 30 years on from this change, our research shows that women are still projected to have a retirement income that is 30 per cent lower than men’s, and two in five (42 per cent) face poverty in retirement compared to 35 per cent of men.
Despite evidence suggesting that when women invest, they often outperform male investors, double the number of men aged 18-24 are investing compared with women of the same age, showing there are still barriers to overcome.
Yet there have been some positive changes in recent decades. Auto-enrolment in 2012 effectively doubled pension participation rates of eligible female employees, resulting in an additional 4.6m women saving into a pension. And nearly half (49 per cent) of women have other investments or long-term savings that will contribute to their income in retirement.
The future for female investors
We looked at the difference small increases in pension contributions could make (choosing 1.15 per cent in honour of the landmark date).
| The power of 1.15 per cent | ||
| Pot size with 8 per cent contributions and no gap in work: £178,109 | Pot size with a 5-year gap from work between the age of 30 and 34 and 8 per cent contributions: £156,452 | Pot size with a 5-year gap from work between the age of 30 and 34, but with 9.15 per cent contributions: £178,942 |
A relatively small behaviour change early in a woman’s career can make a difference to retirement income. An extra 1.15 per cent invested from the age of 22, pushing contributions from 8 to 9.15 per cent, would wipe out the deficit caused by taking a career break in their 30s.
Simple calculations like this show women the power of the possible. Education can do as much as policy reform to support in closing the gender pensions gap.
The power of salary exchange
Salary exchange is a powerful financial tool, and essentially provides access to free money in the form of reduced national insurance contribution. It’s a win-win for employees as take-home pay should never be less! So, either you will have more in your pocket or an increase to your pension savings.
However, it isn’t always transparent which companies offer this, so it’s worth checking whether yours does. It’s especially useful for higher earning parents who can become eligible for the government’s 30 hours free childcare scheme.
Paw-fect partners
I cherish my walks with my two companions, Charlie and Buddy. They are my perfect thinking partners. Charlie, my 11-year-old Golden Retriever is a stubborn old man who wants a quiet life and endless snacks. Buddy, my 10-year-old Cocker Spaniel is desperate to be loved by everyone. They have taught me the importance of patience and consistency. They also show me the value of unconditional love, it is a privilege to be their dog mum!
What I’m recommending
Where do I start! I’m so curious and love learning so I generally immerse myself in non-fiction books and interview-style podcasts. I believe we can learn something from everyone, we should never stop! My daughter is studying for a musical theatre degree at Performers College, so musicals are our passion! Our ultimate favourite (we have seen it four times already) is Hamilton. For those of you who haven’t seen it, GO! It’s a brilliant production about the story of American founding father Alexander Hamilton, told through a hip hop and R&B lens. The soundtrack is everything, it’s definitely worth a listen – I tend to put it on when I’m cleaning the house, (yes I am so rock and roll).