Women and retirement: how to plan for your future
At Path, we’re passionate about empowering women to take control of their finances. One very important topic of discussion recently has been the gender pension gap – in the UK, there is a large disparity between the values of personal pensions for men and women.
Recent research from Now Pensions shows that women are likely to have £136,800 less in their pensions than the average man, and would need to work an additional 18 years to save the same amount of money into their pension as men.
This gap exists for a number of reasons – it is women who are most likely to reduce their working hours, or cease working altogether, to concentrate on raising a young family, in addition to the existing gender pay gap and previous state pension inequality.
Going on maternity leave, taking a career break or taking care of older relatives can have an impact on your pension – here’s our guidance.
Going on Maternity Leave
The good news is that pension contributions under auto-enrolment continue while you are receiving Statutory Maternity Pay, and if your employer already matches your contribution, they will continue to do so throughout your leave. However, pension contributions during this period will be dependent on your actual earnings. So, you may find that you are contributing at a much lower level than you were prior to your leave.
Your auto-enrolment contributions will only be paid for the Statutory Maternity Pay period. The final 13-week period is treated as Unpaid Leave, and therefore would not qualify for pension contributions under the auto-enrolment system.
It may also be the case that you have decided to leave the workplace permanently, perhaps as a stay-at-home parent or to concentrate on other pursuits and your young family. Continuing to fund your pension during this time is an important consideration, in particular the allowable contribution of gross £3,600 per year as a non-taxpayer.
Returning to work
If you return part-time, you can still join your company workplace pension scheme, and you will be automatically enrolled if you meet the minimum eligibility criteria. Even if you are outside the auto-enrolment age limits or below the earnings trigger, you can opt in if you choose to.
If your earnings are low, your pension contributions may feel too minimal to make a difference. But investing over a long period of time, and with the benefit of compounding, small pension contributions can grow into significant savings by the time you come to retire in later life.
If you return to work on a flexible basis, your employer will automatically enrol you into a pension scheme the first time your earnings pass the auto-enrolment threshold. These contributions will continue while you remain eligible, but remember that they may also cease if your earnings fall below the minimum amount, depending on the rules of your workplace pension scheme.
Auto-enrolment rules don’t apply if you are self-employed, and it is up to you to consider saving for your retirement. Remember, a little goes a long way, so if you can afford to make personal contributions, it is definitely worth putting aside a little each month if you can.
Caring and pensions
Women are much more likely to provide care for older relatives – in fact, 58% of family carers are women.
Caring is a demanding role. If you have been with your employer for more than six months, you have the right to request flexible working options to help you meet your caring responsibilities. Usually this comes with amending or reducing your working hours, which in turn can have an impact on your personal finances, such as take-home pay and your workplace pension contributions.
In some circumstances, you may need to temporarily leave work entirely to take care of our loved ones. If you receive Carer’s Allowance, you will automatically receive Carer’s Credit, a valuable contribution to your National Insurance record to ensure that you remain on target to receive your State Pension entitlement. Carer’s Credit can also be claimed if you don’t qualify for Carer’s Allowance.
With family commitments at the forefront of your mind, your personal financial situation can sometimes take a back seat. From navigating which parental benefits you may be entitled to, switching to part-time hours, amending your budget or saving a little bit for your children’s future, the list can feel very overwhelming.
But, careful budgeting, cash flow planning, a sufficient emergency fund and properly stress testing your existing savings can go a long way to ensuring that your time off is spent on the most important things.
Remember, if you have left the workplace – temporarily or permanently – continuing to fund your pension arrangement is vital to future-proofing your finances and ensuring that when the time comes, you can be financially secure during retirement.
You can find lots more guidance on navigating your finances during every stage of life with our Seeding Change series here. At Path, we can help you to explore your options in a way that allows you to keep control – do not hesitate to get in touch if you would like to chat about your finances.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.