The Widening Gender Pension Gap

By Jessica Best

Without leading down a feminist tangent, we need to talk about the gender pension gap. For as long as women choose to have children, they will have smaller pensions than their male counterparts, as would any person who is the main child carer.

Commencing maternity leave, a mother would typically receive lower pay over the period which subsequently means fewer personal and employer pension contributions. The average woman sacrifices 5 years of her working life to raise children, which is a rewarding job in itself, however, during this time even more pension contributions will have been missed as well as the opportunity for career progression and subsequent pay rises that their male counterparts would have otherwise received.

Workplace pension contributions are the greatest benefit you can receive from your employer because it is effectively free money as a percentage of your salary, so stopping work to raise children unfortunately means you would be losing out on said contributions.

Personal pension contributions also benefit from automatic government tax relief, so again making these contributions you receive free money!

As per the age-old mantra of stocks and shares investments, making pension contributions early means they have the greatest opportunity to achieve long-term capital growth, of course you must remember this is not guaranteed.

One must also consider that women on average live 10 years’ longer than men, meaning they need larger pension pots to fund their retirement and any subsequent long-term care costs that may arise alongside.

What’s more, women are more likely to spend any income they do receive on their children, meaning they have minimal or no surplus income to put towards their retirement savings.

If you have a partner on parental leave or has reduced their work hours to raise your children, could you help them by making pension contributions on their behalf? Likewise, a pension contribution can be made at any age and you could commence a pension for a child or grandchild from birth to give their retirement savings a kick-start.

It is worth having these conversations now and understanding the importance of private pension provisions because the state pension will not provide enough for you to continue your current lifestyle in retirement and supporting female retirement provisions now gives them a chance to close their pension gap.

This article has been written as per current legislation of the 2022/2023 tax year.

Please note investments are not guaranteed, capital value can go down as well as up.

References: Phoenix Group and Insuring Women’s Futures, part of the Chartered Insurance Institute.

Explained: How pension tax relief works and boosts your retirement savings

Tax relief could boost your pension and mean you have more financial freedom in retirement. Yet it’s something that you may overlook when reviewing your pension, as analysis suggests that some workers aren’t claiming their full entitlement.

In fact, according to a report in The Telegraph, higher- and additional-rate taxpayers could have missed out on as much as £811 million of tax relief in the 2021/22 tax year.

So, how does pension tax relief work? Read on to find out.

Tax relief is like a bonus the government gives when you save for retirement

A pension provides a tax-efficient way to save for your future because of the tax relief you receive. Essentially, when you add money to your pension some of the money that would have gone to the government is added to your savings instead.

When you consider how this could add up over the long term, it means saving for retirement through a pension makes sense for two key reasons.

  1. More money is going into your pension when you contribute so you could have a larger pot when you retire. As the money held in your pension is often invested, tax relief, along with other pension contributions, could grow further during your working life.

  2. As saving into a pension is tax-efficient, contributing could reduce your overall tax liability. However, you should keep in mind that pension savings usually aren’t accessible until the age of 55, rising to 57 in 2028.

You receive tax relief at the highest rate of Income Tax you pay. The amount is calculated on your pre-tax earnings. So, as a basic-rate taxpayer, if you contribute £80 to your pension, you’ll receive £20 in tax relief, meaning a total contribution to your pension of £100.

To boost your pension by £100 in total, you’d need to contribute £60 and £55 as a higher- or additional-rate taxpayer respectively.

If you don’t earn more than the Personal Allowance, which is £12,570 for the 2022/23 tax year, you could still benefit from tax relief at a rate of 20%.

You may need to fill in a self-assessment tax return to claim your full entitlement

If you have a workplace pension, tax relief of 20% will usually be automatically added to your pension. This is known as “relief at source”.

However, if you have a different type of pension or you’re a higher- or additional-rate taxpayer, you will need to complete a self-assessment tax return to receive your full entitlement. You’d normally receive this additional tax relief through a tax rebate, which you can deposit into your pension if you choose.

It’s worth checking you’re receiving all the tax relief you’re entitled to, even if you believe it’s automatically added to ensure you’re not missing out. The Telegraph report indicates this is something many workers are overlooking.

How much tax relief can you claim?

If you can, contributing more to your pension could mean you receive more in tax relief so your money goes further.

There are limits to how much you can add to your pension before you could face an additional tax charge when you access your savings. These thresholds include the:

  • Annual Allowance: This is the amount you can add to a pension during a tax year while still retaining the benefits of tax relief. For the 2023/24 tax year, the Annual Allowance is up to £40,000 or 100% of your annual earnings, whichever is lower. There are circumstances when your Annual Allowance may be lower, including if you’re a high earner or have already taken an income from your pension. Please contact us if you have any questions about the Annual Allowance.

  • Lifetime Allowance: The Lifetime Allowance is the total pension benefits you can build up before suffering a tax charge. It covers the total value of your pension, rather than just your contributions, so you may also need to consider how tax relief, employer contributions, and investment returns will add up. For the 2023/24 tax year, the Lifetime Allowance is £1,073,100. The government has frozen the Lifetime Allowance until 2025/26.

Pensions can be confusing and you may not be sure if you’re saving enough for the retirement you want. Contact us to talk about your long-term goals and the steps you could take now to help you reach them.

Please note: This blog 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 results.

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.