Due to the gender pay gap, not only are the initial pension contributions larger for men, but the subsequent investment growth will also be greater.
If this is extrapolated over 10 years, with both salaries assumed to have grown annually with 2 per cent inflation, the compounded investment growth exacerbates the problem:
The difference in pension contributions over the 10-year period is £1,944.67, in favour of men. Furthermore, whilst in year one the investment growth disparity is only £8.88, by year 10 this has compounded to £603.27.
Why else is there a gender gap in pensions and retirement planning?
Firstly, men are proven to be more willing to take risk with their investments. One assumption that is made in the above example, is that both men and women achieve the same 5 per cent investment growth.
This is inherently flawed as studies show that women are less confident when it comes to investing. In 2016/17 for example, 1.2m stocks and shares Isas were held by men, and only 957,000 investment accounts were owned by women.
With women less confident about moving away from the perceived safety of cash, the chances of their investment returns matching those of men, or even outperforming inflation are significantly lower.
Secondly, historically older males are much more likely than their female counterparts to have extremely generous final salary (defined benefit) pensions.
These types of pension, akin to a guaranteed income for life, were much more common in the 20th century when the gender pay gap was even greater. LCP, a leading international actuarial firm, reported that in 1993 virtually all FTSE 100 companies offered traditional final salary schemes to new employees.
By 2018, not one of those companies does. When you consider that in 1995 only 6 per cent of The Times “Top 200” companies had female board directors, pension inequality was destined to emerge.
Thirdly, many people depend on the state pension to fund their retirement. Women face heading into retirement with a state pension gap of £364 a year, according to recent figures published by the Department for Work and Pensions.
One of the key reasons for this shortfall is that women are more likely than men to take breaks from employment to fulfill caregiving roles, whether that be with dependent parents or children.
By missing years of employment, National Insurance contributions fall by the wayside, leaving ground to be made up to have a full state pension entitlement.
People will usually need to have 10 qualifying years on their National Insurance record to get any new State Pension, and they will need 35 qualifying years to get the new full State Pension.
