More than a million women in their 20s could be saving adequately for retirement if they were able to access emergency cash from their pensions, Scottish Widows has said.
According to the Scottish Widows Women and Retirement Report 2018, 75 per cent of women have a pension and of these, 40 per cent say they don’t save as much into their pension as they would like to because they feel they need the flexibility to access savings if they need them. This equates to 1,021,284 women aged 22-29.
As a result, the pension provider is calling on the government to build greater flexibility into pension products, by allowing savers penalty free access to some of their pension savings in times of financial hardship.
Scottish Widows said there were a number of ways this could be implemented, with limits on the frequency and size of withdrawals, so that savers’ pension pots were not negatively affected.
The provider also called for higher contributions to pensions. Minimum pension contributions through auto-enrolment are set to rise to 8 per cent in April but the provider suggested a combined 12 per cent employer and employee contribution was a more adequate level of saving.
This would create sufficient scope for retirement savings to play in a role in tackling financial hardship in the shorter term, and to safeguard families from problem debt, Scottish Widows stated.
The research showed the 40 per cent of women that don’t save as much as they would like compared with about a quarter (24 per cent) of men aged 22-29.
About 357,000 women in this age bracket said they would start saving into a pension for the first time if they could have the option to access some of their savings should they need it.
The report found more than two-thirds of women aged 22-29 (67 per cent) were not saving enough for retirement, and 25 per cent were not saving anything at all.
Men of the same age were better prepared, with 46 per cent saving adequately for retirement and 17 per cent not saving at all.
At every age, men’s savings outpaced women’s the provider found, stating this could be for a number of reasons, including the gender pay gap, women taking maternity leave, or choosing to work part-time.
The gap widened as savers reached their 40s when women had an average of about £23,000 in savings and investments and men had more than £50,000.
Men’s savings continued to grow well into their 70s, where they reached an average of almost £130,000, yet women had about £48,000.
Women in their 60s began to see their savings dip, which could suggest they were accessing their pensions much sooner than men.
According to Jackie Leiper, retirement expert at Scottish Widows, building greater flexibility into pension products "would help kick-start a new wave of young female savers, while helping boost the amount that those already saving are putting aside".
She said: "We believe that everyone should have penalty-free access to some of their pension savings, to help break down existing barriers and more closely reflect our lifestyles today and in the future.
"The proportion of women saving adequately has risen steadily over the past few years, with the retirement savings gender gap starting to narrow. While progress is positive, it’s still a slow burner."
Craig Harrison, managing director of Creative Wealth Management, agreed with Scottish Widows, saying "any move towards greater flexibility will help encourage younger people and others to save".
He noted, however, that "there should be built in safeguards, which prevent the individual raiding their pension savings and leaving themselves with nothing when they come to retire".
Government-backed workplace pension scheme National Employment Savings Trust (Nest) is testing a new savings model which might be a solution for this problem.
The pension provider is trialling a sidecar model, which would create two different pots – one for short term emergencies and a long-term pension savings plan.
Once the level of emergency savings reaches a satisfactory threshold, all contributions will start rolling into the pension pot.
maria.espadinha@ft.com
