The gender pensions gap could be worse than first thought.

According to Fidelity, Women earn 10% less than men before having children, but once they become parents, that gap widens to 30%. As a result, the average 60-year-old woman’s pension fund amounts to just half of that of a man at the same age. (Source: Aegon)

And for self-employed women, the story takes an even worse turn, as 32% are making no effort to save toward retirement at all.

What is to blame?

There are three main factors causing self-employed women to save less for retirement than both their employed and male counterparts:

Career gaps: Women are more likely to take breaks from working life to take care of children or dependent relatives. In 2016, the number of women taking time away from work to support their family reached 2.5 million (Source: Women Returners). That means that 7.5% of the female population (Source: Statista) had no earnings and were therefore not making contributions into a workplace or personal pension.

Working hours: Not all women give up work altogether. Pregnancy, childcare and looking after loved ones mean that more women are working part-time hours. Women account for almost three quarters (74%) of all UK part-time workers. Working less hours means that self-employed women are earning less income, which gives them less flexibility to contribute to a pension.

Lack of support: The self-employed are not yet included in automatic enrolment, which means that any pension planning must be arranged by the individual alone. On top of this, where employees benefit from additional employer contributions each month, those who work for themselves only have one source of pension contribution, therefore, self-employed people need to save almost twice as much to reach the same amount as employees in a workplace pension.

Why are so many women self-employed?

According to Fidelity, some of the reasons women choose to work for themselves include:

  • Caring for children and dependents
  • Having control over their work/life balance
  • Following the sector standard
  • Easing into retirement without giving up work suddenly

Looking to the future

It appears that saving gets harder over time. Another Fidelity report shows that less than a third (30%) of 30-year-old women believe they will be in a position to begin saving more over the next 12 months, and that figure more than halves by the time they reach 35, to 12%.

Meanwhile, 40% of those aged 30 are beginning to re-evaluate their finances as they plan to have children.

So, how can self-employed women generate higher retirement income?

National Insurance contributions: To qualify for a Full State Pension, the foundation of most people’s estate planning, you will need to have at least 35 years of national insurance credits. These are automatically added to your record when you are employed or claiming certain benefits. However, if you work for yourself, you will need to make voluntary contributions to secure your State Pension. Check you contributions record, and make any necessary contributions here.

Saving more: Putting more money into your Pension is the most straight-forward answer. Whether that involves increasing your monthly deposits or contributing lump sums as and when they are available.

It is worth noting that the tax-free benefits of Pensions often make them the most suitable and popular method of saving for retirement, but if you do want to go in a different direction, you could consider:

ISAs: You can save up to £20,000 each year in a Cash or Stocks & Shares ISA. Savings into an ISA is tax-efficient. There are many types of ISA which can be used to save for retirement, so education and information are the keys to finding the one which best suits you.

Property: If you own property, you can consider selling it to release money for retirement. Alternatively, you may want to use Equity Release, which allows you to free up the value of your home, whilst continuing to live in it. This money is then repaid when the house is sold. Buy to Let investments may also be an idea if you have enough capital in retirement for a deposit.

Lifetime ISA: Lifetime ISAs offer a 25% government bonus on all contributions made until your 50th Your annual deposits are limited to £4,000 and this forms part of your Annual ISA Allowance of £20,000. You must open the Lifetime ISA before your 40th birthday and you will be penalised for taking cash out of the account for reasons other than putting a deposit on your first home, or to fund your retirement after the age of 60.

No matter your gender, employment type or how long you have left to plan your retirement, we are here to help you determine your goals, then find a way to meet them. To talk about your future and finances, get in touch with Sarah and Bev on 0115 9338433.