How women can invest to close the pension gender gap

Written by Lori Campbell on 13th Sep 2018

Tomorrow is Pension Awareness Day #PAD18.

Hundreds of thousands of women choose a part-time, self-employed life to be around for their children. One of the many sacrifices they make to do so is often their own retirement savings. But with a pension pot for a “comfortable” retirement at £210,000 per couple, according to Which?, this is a compromise too far.

Good With Money, in partnership with PensionBee and some of the UK’s top Mum bloggers including Clemmie Telford, Mother of All Lists, has launched a campaign to encourage Mums who do not have a current pension of any kind, to think about their own futures too and start saving as much as they can.

And just so you know you can see how much saving a bit now can generate for you in retirement by having an experiment with this calculator


Women are being urged to act now to offset the impact of a glaring gender pension gap on their financial future.

With women facing a pension pot that is 11 per cent lower than their male counterparts, Fidelity International says it’s become a necessity for them to make their money work harder for longer.

To mark Pension Awareness Day on September 15, Fidelity’s investment director Maike Currie offers some tips to help incentivise women to take steps to invest in their long-term finances.

Ms Currie said: “Pension Awareness Day rightly shines a spotlight on the UK’s ongoing retirement savings challenge. Women in particular face barriers to saving from all angles – not only the gender pay gap, but also working part time or taking career breaks which impacts how much they can put into their pot over a lifetime.

“Add to this a longer life expectancy than men, and the fact that most women over 60 are either single, widowed or divorced and the magnitude of the challenge is highlighted. It’s imperative that women feel empowered to take charge of their financial future.”

According to a recent report by Fidelity International, ‘The Financial Power of Women‘, women could close the pension gender gap if they invested an extra £35 a month – which equates to 1 per cent of their average salary.

Ms Currie said: “Our research tells us that if women contributed just an additional £35 per month over 39 years to their pensions, we would eventually close the gender pension gap – the gap that sees men on average having far larger pension pots than women. Incorporating this amount into weekly or monthly budgeting is a good first step towards safeguarding later life –small changes today can make all the difference.”

But she said women should also be looking at investing their savings more wisely. Currently women are much less likely to invest their money than men, preferring instead to opt for the perceived safe haven of cash savings. This means that women are missing out on higher returns.

For example, a woman who used her full ISA allowance over the past four years to invest in an accurate FTSE All Share index tracker fund would have returned 26 per cent – amounting to £2,434. But if she had left her savings in cash, the pot would have grown by just £290 – or 0.4 per cent.

The research revealed a lack of knowledge and understanding among women about what their investment options are, with 45 per cent saying they find the process to be complicated. Almost a fifth (18 per cent) said they found the investment industry to be incomprehensible and intimidating.

Ms Currie said: “Employers and industry also have a role to play in making sure everyone feels informed about their pension and empowered to make the financial decisions required to ensure it grows to a pot size large enough to suit their lifestyle.”

She added that there is still a misconception that investing is the preserve of city types and traders, and that you need to have a hefty stash of cash to start investing. Whatever your budget, she says there is an investment option that could make a real difference to your finances when you reach retirement.

Here she offers her quick-fire approach to investing for different budgets:

Budget of under £1,000 a year

With a stocks & shares ISA, you can start with as little as £50 a month as part of a regular investing plan. Drip feeding your money into an ISA is not only much easier on the wallet than stumping up a large lump sum each year, you will also benefit from something called pound cost averaging. This means you buy more when prices are low and fewer when prices are high which can help to cushion a portfolio from dips in the stock market.

Start by picking an ISA provider – Fidelity International, Hargreaves Lansdown and AJ Bell are all players in this space. Next, choose investments to hold within the stocks and shares ISA. If you’re struggling to make a choice, remember there are ‘ready-made’, low maintenance solutions out there like multi-asset funds which do the job of choosing the right mix of investments for you. This is important because holding a range of assets in line with your investment goals and risk tolerance can help spread the risk. Think: eggs and baskets.

Budget of £1,000 – £5,000 

If you have a slightly larger budget, you can cash in on the government’s lucrative Lifetime ISA. When you pay in, the government gives you a huge bonus that trumps any Cash ISA interest rate. There’s just one catch. The money can only be used either to buy a first property or for retirement after age 60.

Here’s how it works: you can pay in up to £4,000 per financial year and the government gives you a bonus worth 25% of contributions at the end of the year. The money can be held in cash or in stocks and shares, as with standard ISAs. Anyone aged between 18 and 40 can take out a Lifetime ISA and can claim the bonus until they reach age 50.

If the money is used for any other reason other than those stated above, a 25% penalty is taken from the total balance before you get it back.

Lifetime ISAs can be a great option if you’re self-employed and don’t have access to a workplace pension.

Budget of more than £5,000

If you have even more money to invest, you could choose between an Individual Savings Account (ISA) or a pension like a self-invested personal pension (SIPP).

Each tax year you can put up to £40,000 into a SIPP and £20,000 into an ISA. ISAs and SIPPs are both highly tax-efficient ways to save, since investments in each will grow free of UK income and capital gains tax. But, when it comes to tax efficiency, SIPPs have an edge over ISAs. This is largely due to the upfront income tax relief you receive on your contributions.

While savings put into an ISA have already lost a slice to income tax, when you contribute to a SIPP you receive a tax relief upfront from the government. This means that if you pay 40 per cent tax then a £1,000 contribution to your SIPP will cost only £600 of taxed income.

However, ISAs have the upperhand over SIPPS when it comes to flexibility. There are strict rules on what you can do with your pension pot, when and how much you can withdraw from it, which makes a SIPP less flexible.

With a SIPP you can’t access your savings until you reach pension age – currently 55, while an ISA allows you to withdraw your money as and when you see fit.

Investors who need instant access to their savings are often put off by the restrictiveness of a SIPP, although the counter argument is that it does impose investment discipline and prevents you from dipping into your savings prematurely.

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