Charlotte Gilder is a Senior Personal Credit Risk Underwriter at Lending Works, a financial services company that specialises in peer-to-peer lending. Here, she looks at some of the ways that working women can boost their pension pots for retirement.
It’s unfortunate but working women in the UK are more likely to have a smaller pension pot than their male colleagues.
According to a recent report from Fidelity, even if a woman were to pay into a pension scheme in-line with auto-enrolment contributions, she would build up a pot that was worth around 11 per cent less than a man.
The report pointed to several reasons for the gender gap. Firstly, many of us tend to take more time off from careers for starting families or caring for relatives, so we end up making fewer national insurance contributions over our working lives. Adding to this were findings that we tended to interact with our pensions less, as well as making investment and savings choices that were less risky than men. The whole situation is compounded by the fact that there is still a wide earnings gap in the UK, with 78 per cent of employers still paying male employees more than women (BBC).
Though the situation is far from fair, there are some things you can do to address a lack of funds in your own pot. Let’s look at three of the best ways you can boost your pension before you retire.
Increase your workplace or personal pension contributions
The simplest way of boosting your savings is to increase your pension contributions so that you build up more funds for retirement. In fact, the Fidelity report mentioned earlier also found that women can close the gender gap by paying an additional one per cent of their salary into their pension.
Increasing contributions allows you to take advantage of pension tax relief from the government, which stands at 20 per cent for basic-rate taxpayers. The best way of doing this is to contribute as much as you can afford into your pension, though you should be wary you’re not paying more than the limit on tax relief (currently £40,000 per year).
If you’re struggling to increase your contributions, there are a couple of things you can do. Firstly, whenever you get a pay rise, make sure you redirect a portion to your pension right away so that your contributions stay in-line with your salary and you don’t get used to spending the extra cash. Also, if you repay any debts, loans or other bills, try paying the same amount into your pension — you’re already comfortably budgeting for it each month, after all.
Consider deferring your state pension
Should you be nearing retirement age and you can comfortably afford your current lifestyle, it may be worth deferring your state pension to boost the amount you’ll receive when you eventually claim it. Under current rules, if you defer your state pension — by not claiming it — an extra one per cent is added for each nine-week period that you delay, allowing you to increase it by around 5.8 per cent per year.
So, if you are quite happy in your current job and can’t foresee any changes for the next few years, it can pay to delay your retirement. However, the longer you defer your pension, the longer it will take to recoup the income you’ve given up, so you should consider your long-term health and financial situation if you’re planning to delay your state pension by more than a year or two.
Find the right investment opportunity
One of the most effective ways to boost your pension pot is by investing your money so that it grows over time. But, many people can be intimidated by investment, often to the point where they would rather keep their money in a current account where their funds are eroded by low interest rates and inflation. In actual fact, the most sensible course of action to both protect and grow your pension pot is to make well-researched, diverse investments in low-risk areas.
If you’re looking to invest but aren’t quite ready to start putting your money into stocks and shares, it may be worth considering an investment in peer-to-peer (P2P) lending. These offer better returns than savings accounts but don’t carry the high risk of the stock markets.
Through an online platform you’ll be able to lend your cash directly to creditworthy borrowers, who’ll then repay the loan with interest to you. And, because there’s no middleman, you can get a better return on your investment. There is still an element of risk to P2P lending, but if you choose the right platform, you’ll get access to extra security measures that will cover or cushion any loss if a lender can’t repay.
Take my advice on board and you can make sure the UK’s gender gap doesn’t have an effect on your pension pot. By staying on top of your pension and investments you can make the right decisions and build yourself a comfortable retirement.