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Women’s state pension age changes will worsen gender pension gap

From 6 November 2018, for the first time in more than 70 years, men and women will receive their pension from the same age

This will be 65 for those reaching that age between 6 November 2018 and 5 December 2018, and then it gradually begins increasing, first to 66 and then to 67. This brings to an end more than seven decades of women receiving their state pension earlier than men.

While some may see this as a step towards equal treatment, it actually means women are a step back compared to men with pensions. The change to women's state pension age adds further weight to what we already know: that the pension gender gap is a concern.

Women on average have far less in their private and workplace pensions than men, leading to a significant gender pensions gap. Research carried out by Aegon shows that women are more likely than men to have no pension arrangements in place; 15% of women compared to 11% of men are failing to pay into a pension plan of any kind.

Figures suggest that the issue gets worse with age; just 7% of females aged 18 to 34 said they don’t have any pension arrangements, rising to 15% for those aged 35 to 54, 25% for those aged 55 to 64, and 44% for those aged 65 and above. Similarly, 23% of females aged 55 to 64 and 22% of those aged 65-plus have never estimated their income needs for retirement. Too many women are simply not engaging with pensions.

Aegon research shows that this difference is reflected in confidence levels among males compared to females. Thirteen per cent of men (compared to 6% of women) are very confident that they will have ample funds for retirement.

By the time women reach age 50 they have on average only half the private pension savings (£56,000) of their male counterparts (£112,000). At age 30 the average female pension fund is £21,029, compared to the average male pension pot at £27,688. Even early on in their career, at age 30, women need to contribute an extra £21 a month to close the gap on men. By age 50 this has risen to an extra £360 a month, showing it pays to address any shortfall in savings as quickly as possible.

Looking to the future, the government’s auto-enrolment initiative should help. However, projections from the Office for National Statistics show that a man currently aged between 25 to 34 putting money into a pension in line with the government’s auto-enrolment contributions is expected to have a pension pot of £142,836 at age 68, compared with £126,784 for a woman in the same age bracket.

There are a number of barriers to women saving as much as their male counterparts for their retirement. A woman’s ability to save for retirement is often interrupted by breaks in her career such as to raise a family or care for elderly parents.

A woman’s ability to save into a private pension is severely limited if she is not earning. But under UK tax rules she can pay in up to £3,600 (including 20% tax relief) in such circumstances, which could come from the family’s total income.

Additionally, women can be disproportionately excluded from auto-enrolment if they earn below the £10,000 earnings threshold. Government data in 2016 showed that 31% of eligible female workers earned less than £10,000 a year. Women are also more likely than men to have multiple jobs, where they earn less than £10,000 a year in each job so miss out on auto-enrolment within each.

The equalisation of state pension age, and future planned increases, are a further prompt to women to think about how much they’ll need to save privately for a comfortable retirement.

Steven Cameron is pensions director at Aegon