Do you have any pension blind spots?

After a number of years of campaigning and the gradual roll-out of auto-enrolment, it seems the message about pensions is finally getting through. According to recent statistics from the Office for National Statistics, 87% of eligible employed workers are now paying into an occupational pension scheme.1

But for women, the story doesn’t stop there.

By their 60s, women typically have £51,100 in their pension – just one-third of an average man’s £156,500 pot.

The picture for women is complex and it seems that at every step of the way, from the gender pay gap through to the tendency for women to take time off and/or reduced hours to care for children or other family members, women are in a disadvantageous position.

And it seems that when it comes to knowledge about their pension options, women are also ‘in the dark’. Research by the government’s Money and Pensions Service2 has revealed that many individuals are unaware of their options when it comes to saving for retirement, with women in particular noted as having potentially detrimental pension ‘blind spots’.

Here we look at four areas where knowledge is limited.

Taking career breaks to care for family

Many parents make changes to their work to help balance work and family life. However, 61 per cent of women and 51 per cent of men were unaware that they can keep topping up their pension while on parental leave. Women eligible to receive maternity or shared parental leave should remain a member of their workplace pension scheme and their employer should continue to pay into it.

Pensions and ill health

57 per cent of people polled by the Money and Pensions Service were unaware that they could access their pension early in the event of suffering severe ill health. If someone cannot work any longer due to illness, they may be able to take their pension benefits early – a process generally known as taking an ill-health pension.

Self-employment and pensions

63% of people were unaware of the fact that self-employed people are able to access tax relief on pension savings. The way in which tax relief applies varies depending on the status of the individual – either as a sole trader or as an employee of their own limited company. Sole traders can make individual contributions out of earnings and are able to reclaim the tax back in their annual tax return. Owners (classed as employees) of limited companies can make employer pension contributions from pre-taxed company profits into a pension up to the annual allowance. These payments are treated as an allowable business expense so can be offset against the company’s corporation tax bill.

Part-time working

Furthermore, a significant area that the Money and Pensions Service doesn’t cover is part-time working. Working part-time has been proven to have the biggest impact on workers’ pension savings over the course of an individual’s working life. Recently released figured suggest that 28.5 percent of women with a child aged 14 years and under said they had reduced their working hours because of childcare reasons.3

In the context of auto-enrolment, some women working part time will find themselves ineligible for their employer’s scheme as the mandatory threshold for auto-enrolment scheme is £10,000. Others that are eligible may choose to opt-out of their employer’s scheme due to the feeling they can’t afford contributions. Even those contributing will, over the course of the time they’re working reduced hours, will contribute significantly less to their pension pot overall.

Each of these areas has the potential to impact on women’s ability to make long-term savings, and the lack of knowledge is cause for concern against the backdrop of an already worrying picture.

Although choosing to take parental leave, working reduced hours or going self-employed may be influenced by many factors, not just earning and saving power, it’s vital that women at least have the knowledge on their pension options. Perhaps if coming from a more informed position, more women may be able to continue to contribute to their pension, which may go at least a little way to bridging the gap.