Why we must remember victims of the gender pensions gap: Sarah Coles

It's far wider than the gender pay gap: the DWP recently put it at 35%. It means that women who reach retirement in a relationship have to rely at least partly on their husband’s income, and those who reach retirement on their own, are forced to live on a vanishingly small income. This calculation excludes those who have no private pensions, and receive only the state pension – and we know more women are in this position too.

The gap varies between different age groups, and is lowest for workers in their 30s. It’s only when they have families and one of a couple changes working patterns, that women tend to get left behind. It’s easy to see why. It’s largely women who take career breaks at this stage or work part time, and as a result they may stop paying into their pension, or dramatically scale back contributions. Money is tight, they may well have childcare to cover from a lower pay packet, so there’s little space for saving for the future. However, it’s important to be clear that there are some choices being made here - even if nobody is aware of it.

When you’re working out a budget with your partner there are certain things that have to be covered – like the gas bill and the mortgage. You make a note of these and then work out how to split your leftover budget between everything that’s left. In plenty of circumstances, the man’s pension makes it to the list of absolute essentials, and the woman’s is relegated to the pile of things that may need to be cut to make ends meet.

This isn’t necessarily due to anything other than maths. One of my friends in the financial world told me they decided to focus on her husband’s pension while she worked part time, because he was a higher rate taxpayer and would get more tax relief. She dismissed any question of how that income would be divided, because she had complete faith in their ability to find a fair solution.

Yet if you take this approach, you need to think through all the implications. First is that while you may have every intention of retiring together, life may have other plans. If you’re not married, then if you split up, you have no rights to the pension. If you are married and get divorced, the pension can be split equally, but an awful lot of couples will offset it. Women may, for example, offset it against the equity in the family home, in an effort to stay put – especially if they have children. It means starting from scratch with their pension later in life.

Even if you do retire together, there’s the question of how you take an income, and how much will be left if the man was to die first. If he has taken a single life annuity, for example, it can leave his widow high and dry.

And even if you both retire together and live long and happy lives, women need to consider the implications of being reliant on their husband’s income. This can be less of an issue for couples where one of them has spent long periods caring full-time, so they’re both used to seeing one income belonging equally to both of them. For those who have worked all their lives and are used to being financially independent, meanwhile, the pensions gap will be much more difficult to live with.

In healthy relationships this can take some getting used to. In less healthy ones it can cause enormous problems. In some cases, it can even enable economic abuse, where one partner forces the other to live on an allowance they can’t manage on, controls exactly how and where they spend their money, or demands something in return for a share of their pension.

You may think through the implications of saving in just the husband’s name, and still decide it’s right for you. Alternatively, you may realise there are severe downsides, but be unable to see any alternative. After-all if you’re earning less, it stands to reason you will be paying less into a pension.

The traditional advice is to pay more into your pension as early as you can. However, in reality, at a time when you’re likely to be on a lower income, possibly repaying student loans, covering expensive rent and trying to save for a mortgage, boosting your contributions can be a step too far. You could cut out every luxury in life to focus on your pension, but you have to ask whether it’s fair that only men should be allowed to go out during their 20s and 30s, while women squirrel away every penny.

The other advice is to ‘catch up’ after a career break. Speaking as someone who has taken that route, I can attest to the toll it takes on your lifestyle. I have to put away an eye-watering percentage of my salary, because I’m far closer to retirement than I was when I had kids, so there’s less chance for that money to grow. A man of my age may have an expensive hobby like travel or sailing. My expensive hobby is my pension.

One sensible option is to make sure your pension investments work as hard as possible for you throughout your working life. Most people end up in their scheme’s ‘default fund’, which is middle-of-the-road and designed to be OK for most people. You may decide that earlier in your working life, you can alter the balance of expected risk and return, so your cash is working harder. By getting to grips with your pension investments, and tailoring them to your needs, you may be able to make up some of the gap through investment growth.

You should also seriously consider maintaining pension contributions even if your working patterns change. You can see your pension payments as being like any other fixed cost in the household, so it falls into the category of ‘absolute essentials’, rather than lumped into that pot of ‘everything else’. You can make a commitment as a couple to support one another, and make sure nobody’s pensions are neglected.

I’ve had this conversation with plenty of people, and the mathematicians will argue that this makes no sense from a tax relief perspective, and they’re absolutely right. However, you have to ask yourself whether you want to retire and depend on someone else – and whether if you leave your pension saving up to your partner one day you’ll end up having to ask permission to buy a pencil.

Remortgage nightmare

This week’s interest rate hike to 5% was horrible news for millions of mortgage holders. Variable rate deals increased overnight, and there’s every chance it’s going to feed through into even higher fixed rates too.

The problem isn’t just the most recent hike, it’s the fact the market is worried that inflation is so entrenched that we’re going to need even more rises in the coming months. It’s pricing in more base rate hikes, to just under 6% in March 2024, which is pushing up fixed rate mortgages.

Over the past month, new fixed rate deals have climbed alarmingly. On the morning of the announcement, Moneyfacts figures showed the average 2-year fixed rate deal hit almost 6.2%. That’s streets ahead of what most remortgagers are currently paying – because most fixed for less than 2%. Someone moving a 25-year £200,000 mortgage from 2% to 6.2% could find their monthly payment rising around £465 to £1,313. Our research shows that more than nine in ten people could run into financial trouble with a rise of that size.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHargreaves Lansdown