The gender wealth gap continues to have a significant impact on women’s financial futures, particularly when it comes to retirement.
While women may be managing their money effectively during their working lives, career breaks, reduced working hours and taking time away from employment to raise children can all have long-term consequences for their pensions and savings.
For women approaching retirement, the impact can be particularly significant.
Financial adviser and wealth coach Rebecca Robertson believes it is important for women to understand the potential impact of these decisions and take steps to protect their financial future as early as possible.
The gender pension gap remains a major issue
Research from Scottish Widows highlights the scale of the problem.
According to its Women and Retirement Report, more than a third of women face poverty in retirement. The research also found that 58% of women approaching retirement had taken a career break, compared with just 12% of men.
Women were also significantly more likely to have taken time away from work to raise children.
By the age of 55, almost one in four women had been out of work for more than five years — a gap that can have a substantial effect on their eventual pension.
Scottish Widows calculated that the median private pension for women at retirement was £173,000, compared with £286,000 for men.
That represents a difference of £113,000.
The figures show why the gender wealth gap is not simply about what someone earns today. Decisions made throughout a career can affect financial security decades later.
How career breaks can affect women’s retirement
Taking time away from work to raise children can be an important decision for a family, but the financial consequences are often overlooked.
A career break can mean lost earnings, reduced pension contributions and fewer years in which investments have the opportunity to grow.
Scottish Widows found that women who had taken career breaks could face a significant reduction in their eventual pension wealth.
One example cited in its research showed that a five-year career break at the age of 35 could result in a pension worth almost £70,000 less by age 67.
That difference is not simply about the contributions that were missed.
The lost investment growth on those contributions can also have an impact.
This is why pension planning needs to be considered as part of the wider family financial plan rather than something that only matters when retirement is approaching.
Why women need to plan financially for career breaks
A career break can sometimes happen without much financial planning beforehand.
Scottish Widows found that 40% of women had not planned financially for their career break, while more than half had not considered the impact it could have on their retirement.
That is understandable when families are dealing with the immediate costs and practicalities of having children.
But retirement can feel a long way away when you are raising a young family.
The problem is that the decisions made during those years can have consequences much later.
Planning ahead does not necessarily mean having to make dramatic changes. It can simply mean understanding what will happen to pension contributions, household income and long-term savings while one person is away from work.
The importance of continuing pension contributions
One possibility for couples is to continue contributing to the pension of the person who has taken a career break.
This can be particularly important where one partner continues working while the other takes time away from employment.
Pension contributions do not necessarily have to come directly from the individual whose pension it is.
Third-party pension contributions can offer one way of continuing to build retirement savings during a period when earning power is reduced.
There may also be tax advantages depending on the circumstances.
Employers can also continue making pension contributions during maternity leave, with workplace pension contributions often based on pre-leave salary.
Understanding exactly what happens to a pension during maternity or parental leave is therefore an important part of preparing financially for a career break.
Why flexible working can make a difference
The financial impact of career breaks is not always simply a question of whether women want to work.
For many parents, finding employment that fits around childcare can be difficult.
Flexible jobs may not offer enough hours, sufficient pay or the career progression needed to make returning to work financially worthwhile.
This can leave women working part-time, starting businesses, or remaining outside the workforce for longer than they originally intended.
Those decisions can then have a knock-on effect on earnings, pension contributions, and future financial security.
The issue is therefore wider than simply encouraging women to return to work.
Access to suitable, flexible employment can also play a role in narrowing the gender wealth gap.
Putting children first can come at a financial cost
Women often prioritise their children’s needs ahead of their own financial planning.
School costs, university, hobbies, holidays, and other family expenses can all take priority.
But putting off pension planning for too long can create a much larger financial challenge later.
It is important for women to consider their own financial future alongside the needs of their family.
Looking after your own retirement does not mean putting yourself before your children. It can mean reducing the possibility of becoming financially dependent on them later in life.
Why delaying pension planning can make the problem worse
The earlier money is invested, the longer it potentially has to benefit from investment growth.
That means delaying pension contributions can make catching up considerably more difficult.
Someone who invests consistently over several decades has more time for their contributions and potential investment returns to build.
Someone who waits until the final years before retirement may need to contribute more to try to reach the same target.
This is where compound growth becomes important.
It is not simply the money that is contributed that matters. Over a lengthy period, investment growth can itself generate further growth.
For women who have already experienced career breaks, the answer is not to panic. Instead, it is about understanding the current position and working out what can realistically be done from this point onwards.
How couples can plan their finances together
Financial planning can become particularly important when one person in a relationship stops working or reduces their hours.
One approach is to view household income as a joint resource while one partner is unable to contribute as much financially.
That could mean ensuring a proportion of the household income continues to be invested into the pension of the person who has taken time away from work.
Another approach is to look at household expenditure and divide financial responsibilities proportionally according to income.
For example, if one partner earns £1,000 a month and the other earns £3,000, their contributions towards joint expenses could reflect that difference rather than simply splitting everything 50/50.
There is no single solution that works for every couple.
The important thing is to have the conversation.
Questions about who will work, who will reduce their hours, how childcare will be paid for and how both partners will continue building financial security should be discussed before decisions are made.
Building financial independence during a career break
Taking time away from work does not mean financial independence has to disappear.
Even where someone is not earning, it can be worth considering what can be done to maintain their pension and savings.
Women should also consider what would happen if their circumstances changed.
Relationships can end, employment can change and family circumstances can be unpredictable.
Having savings and pension provision in your own name can provide an additional layer of financial security.
This is particularly important for anyone who has spent several years prioritising their partner’s career or their children’s needs.
What women can do to close the wealth gap
There is no single solution to the gender wealth gap, but there are practical steps women can take.
Start by understanding your current financial position.
Look at your pension, savings, investments, and household income. Consider whether your pension contributions are sufficient for your long-term goals and understand what could happen to them during a career break.
If you are planning to have children or take time away from work, have the financial conversation before the career break begins.
If you are already on a career break, it is not too late to review your position.
Couples should also discuss how household income will be managed and whether pension contributions can continue for the person who is not working.
Most importantly, women should not assume that retirement planning can wait until later.
The gender wealth gap is built over many years, which means addressing it also needs to start early.
Taking control of your finances today can help give you greater financial security and more choices in the future.
Rebecca Robertson in the Accelerating Your Wealth podcast.
