Could an additional 1% pension contribution help women to counter the effects of the gender pension gap?

You may have heard of the gender pay gap, but how much do you know about the gender pension gap?

This is the average difference in private pension wealth between men and women. Royal London reports that the gender pension gap stands at 35% in 2024 – in other words, the average woman will retire with a private pension that is 35% smaller than the average man’s.

The reasons behind this are multifaceted. Fortunately, a little forward planning can enable you to boost your pension early on, helping you to save enough to afford your dream retirement. Read on to learn more.

Differing working patterns between men and women are the biggest contributor to the gender pension gap

The House of Commons published a report in 2024 about the gender pension gap. It found that the working patterns men and women tend to follow significantly contributed to the problem.

The report shared that women are more likely than men to work part-time, and that these jobs tended to have a lower median rate of pay than full-time employment. This makes it difficult for women in part-time roles to contribute to their pensions at the same rate as men, since workplace pension contributions are made as a percentage of salary.

Women seem to experience the biggest negative impact on their pension wealth in their 30s. This is the decade in which they are most likely to take a career break to have children or to care for their family.

Indeed, the report shares that women are seven times more likely than men to be out of work as a result of caring responsibilities.

A career break can impact your pension wealth in several different ways. As well as potentially needing to pause making pension contributions yourself, you may also miss out on employer-matched contributions.

A 1% increase to pension contributions today could significantly boost your pot

Fortunately, there are steps you can take to overcome the gender pension gap and stay on track for the retirement you’re hoping for.

Fidelity reports that increasing your workplace pension contributions by just 1% from the minimum level of 8% could help to add an extra £37,000 to your pot by retirement.

It suggests that a woman who contributes an additional 1% to her pot from the age of 25 and takes a two-year break in her 30s to start a family could retire with a pension pot of £316,340.

According to the report, this is:

• £10,000 more than a woman who paid in the minimum amount (8% of her salary, composed of 5% employee contributions and 3% employer contributions) throughout her career without taking a break to start a family
• Over £35,000 more than a woman who paid in the minimum throughout her career and took a two-year break.

These calculations were based on the Office for National Statistics data on average earnings, adjusting for inflation and investment growth.

Third-party pension contributions could be another way to combat the gender pension gap

Another way that you could counter the effects of a career break on your pension is to consider third-party pension contributions. For example, your parents or your partner could make contributions into your pension on your behalf. As well as boosting your pension, you could also receive tax relief on the contributions they have made.

By continuing to deposit into your pension even when you are not working, you may be able to avoid having a shortfall by the time you come to retire.

It’s important to remember that the Annual Allowance limits how much you can pay into your pension tax-efficiently to £60,000, or your total earnings, in 2024/25. If you aren’t earning, the limit is £3,600. Any third-party pension contributions that exceed this limit could incur a tax charge.

Your planner can help you calculate how much to contribute to your pension each month

Of course, a 1% increase may not be suitable for you personally. To understand the right level of pension contributions that will help you achieve your goals, you’ll need to consider your own circumstances.

This is where your planner can help. They can calculate how much you might need to save into your pension by retirement, and break this down into a monthly amount to contribute. Moreover, if your circumstances change, they can help you alter your plan so that it continues to support you in achieving your goals.

Get in touch

Learn more about how you can save towards the retirement you dream of by booking a meeting with your planner today.

Email us at info@harperlees.co.uk or call 01277 350560 and we’ll be very happy to help.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.