Women expect £42 billion pensions shortfall in 2009

The 2.76 million UK women who plan to retire in 2009 will each expect to receive £6,642 a year less in their annual pensions than men, equivalent to a total income shortfall of more than £42 billion, according to new figures from the Prudential Class of 2009 retirement survey published this week.

Women planning to retire in 2009 expect to receive an average annual pension of just £13,671, while the 3.95 million men who plan to retire in 2009 will get £6,642 more, expecting to collect an average pension of £20,313.

And while 58 is the average age for UK adults retiring in 2009, more women than men say they will work beyond the traditional retirement age.

Almost one-fifth (18 per cent) of women plan to work beyond the standard female retirement age of 60, compared to just 5 per cent of men who plan to work beyond their 65th birthday.

Why women have smaller pensions

"It's still a shock to see so many women retiring at such a disadvantage to their male colleagues, despite all we know about the causes of pension discrepancies between men and women," said Karin Brown, Annuities Business Director at Prudential.

"The gender gap has become so firmly established because women have historically earned less than men, and still earn around 17 per cent less. When women have children, their pension contributions reduce significantly or stop altogether, and their state pensions often take a hit as well.

"The divorce rate which has climbed over the past few decades is expected to keep rising, so we could see an increase in the number of divorced women without a spouse's pension to fall back on."

Start pension savings before 30

"The underlying problem that many people have insufficient pensions is never going to go away unless men and women start saving for their pension much earlier in life, ideally in their twenties or thirties," Karin adds.

"Starting a pension at an early age will lessen the impact in later life of many women's decision to take a career break to have children. It will also mean people can feel confident that they are going to have enough money to live off when they do come to retire, and this is vitally important for women who expect to receive smaller pensions than men."

Issues and solutions

1. Women taking a career break

One major cause of pensions gender gap is that women take a career break to have children, but it is possible to protect future pensions and maintain a pension during this time.

Women who do have children can safeguard their state pension with home responsibilities protection but this must cover the full tax year from April to April, so July to July, for example, would not count. Women can also buy back any missing National Insurance contributions.

Women could also consider trying to keep up any company or private pension contributions even if they are on maternity leave or an extended career break - or ask their spouse or partner to make contributions for them.

2. Neglecting pension savings

As many as 61 per cent of people retiring this year doubt their pension and other savings will provide a sufficient income to enable them to enjoy a comfortable life in retirement.

Although many working people may not be able to remedy this situation at a late stage in their working lives, younger people do have a chance to start building a decent pension pot. Prudential believes people should start saving for a pension in their twenties or early thirties instead of putting it off until later in life.

3. Not saving enough

Although many people do save for a pension, either in occupational or personal schemes, it may not be sufficient to enjoy a good standard of living in retirement.

A rule of thumb is for people to try and save half of their age as a percentage of their salary into a pension scheme, for example 12.5 per cent at age 25; 15 per cent at age 30; 20 per cent at age 40 and so on.

4. Not taking advantage company schemes

Many employers offer generous pension schemes and agree to match any contributions made by employees. People should enquire about the pensions scheme offered by their employers.

5. Not shopping around

People in retirement have a wide choice of annuities available to them and it is recommended that they shop around for the product which is most suitable for their needs.