A vast gender pension disparity means women face significant financial shortfall in retirement. Stuart Wilson of more2life examines how the later life lending sector could help plug the gap
The gender pension gap could be as much as £108,130 for single women in retirement. That’s according to more2life’s latest Later Life Lending report.
The same research also uncovered that, when life expectancy is considered, the retirement income shortfall could rise to £186,120 for women who are married or in a relationship.
The long-standing issue of the gender pension gap resurfaced when the State Pension age was increased again in early October. Those born between 6 October 1954 and 5 October 1960 will now need to wait until they turn 66 before they can begin claiming their State Pension allowance.
Groups such as the Women Against State Pension Inequality (WASPI) have argued previously that changes to the State Pension age unfairly impact women, who typically face the challenge of funding a longer retirement on much less income than men.
As revealed by more2life’s research, the majority (73%) of women over the age of 54 expect to rely on their State Pension in retirement.
However, with the new State Pension paying retirees up to just £175.20 per week – equivalent to less than £10,000 per year – and further increases to the State Pension age expected, it is clear many women will need to look beyond state provision and consider how assets such as property can help them fund their later years.
The gender pension divide
The difference in average retirement income between men and women stems predominantly from the gender income gap.
As earnings normally form the basis of a person’s pension, how much an individual is paid over their working life has a direct impact on their pension income.
In 2019, the government found the gender pay gap had reached 17.3%, meaning that for every £1 earned by a man last year, a woman would have been paid just 83p for the same work. This means that many women may struggle to save enough for later life.
The wage gap is often made worse by the decisions women typically face throughout their working life.
Often stemming from a desire to care for family, many take time out of work. However, the harsh reality is that even short pauses in pension contributions can create serious long-term differences in the value of a retirement fund.
For instance, a woman who has two children in her early thirties, takes a full two years of maternity leave and returns to work part-time after her first child could miss out on between £20,000 and £50,000 in retirement savings.
The impact that career breaks can have on a woman’s State Pension allowance in particular is similarly concerning.
To qualify for the full allowance, a person must have accumulated 35 years’ worth of National Insurance (NI) contributions. However, given that women are more likely than men to take time out of work, this simply might not be possible for some.
Therefore, it’s not just that many women will now have to wait longer to claim their State Pension allowance, it’s also that some won’t qualify for the full pay-out either. This could leave thousands in an even worse financial position when they reach later life.
How do we combat the retirement income gap?
To tackle the retirement income gap, women will need to look beyond the State Pension when creating a later life plan.
Government support these days is aimed at preventing people from falling through the cracks, but to achieve the aspirational retirement many desire, it is crucial that women consider how other assets can help.
Property wealth has become an increasingly popular way for women to boost their retirement income over recent years. Indeed, homeowners aged 55 and over can unlock their built-up housing wealth by taking out an equity release plan. According to Key, 26% of equity release customers are now single women – twice the number of single men (13%).
There are many types of equity release plans – the most popular of which are called lifetime mortgages – offering customers flexibility and control over how they access their housing wealth.
For example, customers can decide whether they would prefer to unlock their housing equity via a lump sum or a drawdown plan. Lifetime mortgages also come with added features like downsizing protection, which can be useful for people who are likely to move home.
In order for women to realise how assets such as property can give them a financial boost in later life, speaking with a professional adviser is vital.
Approaching an adviser sooner rather than later will provide reassurance and confidence to customers, particularly those who are unsure about their options, educating them on how different assets can be used to form a holistic financial plan for retirement.
Ultimately, by utilising complimentary assets and speaking with a professional, more women will be able to plan better for retirement and step into later life with financial confidence.
Stuart Wilson is corporate marketing director of more2life
