Why men have bigger pensions than women… and what women can do about it


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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

It’s a fact that women, on average, build up much smaller pensions over their working lives than men. According to Money Matters research, the average UK man has a pension pot worth almost three times that of the average woman.

Let’s take a look at some of the main things that contribute to this gender pensions gap, and the actions you can take to close it.

1. Bigger salaries

The single biggest reason men have bigger pensions is because, on average, men earn more. Among full-time employees, the UK gender pay gap in April 2021 was 7.9%, according to official data from the Office for National Statistics.

The good news is that the pay gap has fallen substantially over time. Back in 2011, the average woman working full time earned 10.1% less than the average man, while in 1997 the pay difference was an eye-watering 17.4%.

Any gap in wages will naturally make it more difficult for women who start saving for retirement today to build up a pension pot as big as the equivalent man. What’s more, the fact the pay gap has historically been larger means those who have been saving for a while will have, on average, had even less spare cash to save for the future than women starting saving today.

Women are also more likely to have part-time jobs than men, which tends to mean working fewer hours, less money earned, and less to invest in a pension. If you’re employed and earn less than £10,000, you also won’t be automatically enrolled into a workplace pension.

What can you do about it?

There are various structural and social reasons why a gender pay gap exists. For example, women are more likely to take a career break than men, perhaps to care for a child or an elderly relative. During such breaks from work, you’re much less likely to receive a promotion or a pay bump.

If you’re employed and take maternity leave, speak to your employer about the terms they offer, which are often more generous than the statutory minimum.

Provided you continue to qualify for automatic enrolment into your workplace pension scheme (assuming you’re employed rather than self-employed), you should keep paying into it if you can afford to. That’s because you’ll benefit from both a matched contribution from your employer and the upfront boost of pension tax relief.

You should also speak to your employer and your partner, if you have one, about shared parental leave. This can allow both parents to share the time away from work to care for their child.

Outside of career breaks, there’s also some evidence that women are less likely to ask for a pay rise than men. According to research carried out by jobs website CV-Library in 2019, 64% of men said they felt comfortable asking for a pay rise compared to just 43% of women.

Although some employers will give wage increases automatically as part of your annual review process, others won’t – so don’t be afraid to put your case forward if you think your pay should go up.

2. Taking less investment risk

Saving early and often is the easiest way to build up a decent retirement pot over time, taking advantage of the incentives on offer – namely the matched employer contribution if you’re in a workplace pension scheme, and the upfront boost provided by pension tax relief.

The performance of your investments is absolutely critical too, with any growth you enjoy free from tax. This investment growth can dramatically boost your final pot value.

Your potential long-term investment returns are affected by how much risk you take and what you pay in costs and charges.

Money Matters research suggests that, when it comes to taking investment risks, women are less gung-ho than men, with only 10% of women saying they would rather take bigger risks for bigger potential returns, compared to 28% of men.

It’s possible that this innate risk aversion reduces the potential investment returns for women, contributing to the pensions gender gap.

What can you do about it?

Decisions about how much risk you feel comfortable taking are personal, and there’s nothing wrong with taking less risk if this suits you best. But as a general rule, those with longer investing time horizons tend to be able to take more risk because they are more able to ride out any shorter-term bumps in the road.

Take your time to consider how much investment risk you feel comfortable taking, and make sure you think about both the potential downsides and upsides.

3. Family finances

Another way retirement savings figures can be skewed towards men is the organisation of family finances.

You can save up to £40,000 in a pension each year, with one of the key benefits being that you don’t have to pay income tax on contributions up to the annual limit.

This means that if you’re in a couple, it can sense to pay pension contributions into a scheme in the name of the higher earner, as they may benefit from more tax relief.

For example, if one half of a married couple is a higher-rate taxpayer and the other a basic-rate taxpayer, then pension contributions made in the name of the higher-rate taxpayer could benefit from 40% tax relief, while the basic-rate taxpayer could only get 20%.

As men have historically earned more than women, in many cases it will have made sense to organise the family finances in this way.

What can you do about it?

If you’re in a couple but not married or in a civil partnership, think very carefully before paying your pension contributions in your partner’s name, because if you split up, things could become quite sticky.

If you’re married or in a civil partnership, paying some or all pension contributions into the account of the higher earner can be the right thing to do. However, you should make sure you feel comfortable doing this and don’t simply leave it to your partner to sort out.

Even if it makes sense from a tax perspective for pension contributions to be made in the name of a higher earner, that joint fund is still half yours and what happens to it will affect your financial future.

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Tom Selby

Tom Selby is a Senior Analyst at AJ Bell. He is a multi-award winning former financial journalist specialising in pensions and retirement issues. Tom has over five years experience working at Money Marketing magazine, where he became the Head of News in 2014. He has a degree in economics from Newcastle University

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