According to – a lot of – data, women are more likely than men to take career breaks for childcare. A new report says this creates a gender pension gap, leaving women’s pension savings 35% worse off than men’s. But there are ways of addressing this disparity – even if you’re an entrepreneur, without the cushion of a company pension.
It is a truth universally acknowledged that women retire on less money than men.
The gender pensions gap
A recent government report says this difference – dubbed the gender pension gap – is a staggering 35%.
The same report states that the gap changes over time. It’s narrowest for those aged 35-39 (10%) but it dials right up to an eye-watering 47% for 45 to 49-year-olds. It then decreases again in the later years of working life.
It’s a perfect storm of typically lower levels of pay and longer gaps out of work – not least for childcare – when compared with men.
In fact, research shows that one in 10 women in their 30s – more than 450,000 women – is out of the labour market because of caring responsibilities, compared to just one in 100 men in their 30s.
If you’re an entrepreneur – perhaps one of the 150,000 women who started new businesses in 2022 – the gender pension gap is something that might loom large for your future finances.
It might be particularly impactful because, amidst product launches, selecting IT vendors, and other material decisions, who has time to think about their savings for retirement?
But it’s not an insoluble problem. In fact, there are there are a number of ways to bridge, narrow or close the gap.
The first is to start early. This enables you to let compound interest work its magic in the background.
Let’s take a simple example. Imagine you invest £1,000. At a compound annual growth rate of, say, 6.5% that pot turns into around £1,300 after five years, almost £1,800 after 10 and more than £4,500 after 25 years. Not bad.
Now, let’s say you top your initial investment with a regular £1,000 every year. You’d expect £5,980 after five years, £14,257 after 10 and £62,421 after 25. Even better.
Bigger contributions and longer time frames can build these numbers considerably. For example, put in £5,000 a year for 30 years and the same growth rate builds to £457,927.
Forewarned is forearmed.
If you know there’s a pension gap coming, it’s easier to plan ahead.
This will probably mean adjusting some of the levers that influence your retirement savings: when you start saving, the amount you save, the date you retire (or at least draw on retirement savings), the amount you think you might need in retirement.
A good financial planner will discuss all of these issues and options with you – reducing worry and giving you a better chance of a decent retirement.
So, whatever your pension gap is caused by, you’ll have something in place to get you across it with as much comfort (and support) as possible.
There’s another option – and it’s something your financial planner will know all about – although it’s possible to do yourself.
And that’s tracking down any pension money you might have had, but lost track of. Overall, Brits have mislaid some £26.6bn in lost or forgotten pensions.
They can be easy to forget. Companies change their name, or documents get lost. Moreover, women on average do at least 12 jobs in their lifetime these days. So, even if you’re starting your own business, it’s possible there’s a forgotten pot from an old job somewhere.
If you can track any old pots down, it’s money that can help you bridge the gap when it comes.
The government has a free tracing service that should also help.
Like many other gender gaps – in pay, in the proportion of entrepreneurs – it’s probably going to take time for government and society to do anything about the gender pension gap.
But any female entrepreneur in possession of a good plan, must be in a good position to close, narrow or bridge that pension gap.
 Average stock market returns over past 200 years, adjusted for inflation, are 6.5%-7.0% https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/markets-will-be-markets-an-analysis-of-long-term-returns-from-the-s-and-p-500
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