By Chantal Williams
The nicest car, the furnishings? The dog? Or the house itself?
We might ask ourselves such questions flippantly, or even joke about it with our spouse over dinner, but it’s always a grim reality for someone. And if you think that means this article is about divorce, think again.
I only mention divorce because it can show up a mysterious blind spot that many women seem to have.
In a marital split, people tend to reveal what they care about most. A few years ago, Unbiased conducted a survey of recently divorced couples, and one of the things we asked was which assets of the marriage they most wanted to keep.
Naturally, everyone said ‘the home’ as their first choice.
Then things got interesting, as the men and women differed in their top five priorities. Women-focused on pets, savings, furniture, and cars, in that order.
Men were also keen on savings and cars – they weren’t so fussed about the dog – but ahead of both those things, they prioritized something that didn’t even make women’s top five. They clung to their pension. That comparatively few women saw pensions as a key asset is, frankly, shocking.
Consider someone on average income who saves moderately for their whole working life. By their mid-60s, they can have a pension pot worth as much as the average house, if not more.
Cars, savings, and most other possessions pale into insignificance next to the raw monetary value of a pension. And when you factor in the additional benefit a pension provides, such as peace of mind in later life, the real value is priceless.
Other research implies that it isn’t solely a female problem. Scottish Widows found that around 70% of divorcing couples fail to consider pensions at all when entering a divorce.
However, this head-in-the-sand approach will typically favour the men, since male partners tend to have the larger (or only) pension.
When it comes to pension saving, men generally have an easier time of it. Various factors are behind this, from the gender pay gap to the fact that more women take career breaks and/or work part-time. Also, more women than men are full-time parents. But the difference in earnings may not explain it entirely.
Another possible reason is that, by spending more time in the workplace, men are more consistently exposed to messages about their pension scheme and the importance of saving.
Another one of our Unbiased surveys, from 2020, found that a third of women have no private pension at all, compared to just a fifth of men. Meanwhile nearly a quarter (23%) of women don’t know how much is in their pension pot, compared to only 16% of men. But where men are really pulling ahead is in the amount they’ve saved. Of those who know their level of savings, 30% of men say they have at least £150,000 in their pot – but only 8% of the women can say the same (excluding the don’t-knows).
By their nature, pensions reveal the earnings gap more vividly than a simple comparison of salaries.
On the face of it, the pay gap between men and women has narrowed significantly among people in their 20s. However, once children come along, women fall behind due to career breaks, part-timing, missed promotions and general discrimination. And since workplace pensions are based on a percentage of earnings, a lower wage means less money going into pension pots.
So for many women there is a period of around 25 years during which their pensions are growing more slowly than the men’s. The ONS worked out that the final difference means that, on average, female graduates can expect around a third less pension than male graduates.
All of which brings us back to that original question: what would you grab first? Because not only are pensions more valuable than most people realise, they’re also relatively more important for women – because women often have lower levels of pension savings to begin with.
No-one should wait for a divorce before waking up to the reality of pensions. The right time to think about your retirement fund is always now. It doesn’t matter how young or old you are, because it’s never too soon or too late to improve your situation.
For instance, pensions can even help you reduce that notorious earnings gap.
How can you do this? Simply by using the advantages built into the pension system. First and foremost, there’s tax relief.
Everything you pay in gets an income tax rebate, which turns every £80 into £100 instantly (that’s before any interest). So the more you pay in, the more ‘free money’ you get back from the government. And if you’re a higher-rate taxpayer, you can claim back double the tax relief for a truly impressive boost.
That’s not all. If you have a workplace pension, your employer must also pay in at least 3% of your salary. But many employers commit to raising their contributions if you raise yours, sometimes matching, doubling or even trebling what you pay in. So you can often squeeze an extra chunk of cash out of your employer simply by raising your pension contributions. Depending on the generosity of your workplace scheme, and how much you can afford to contribute, you can wangle yourself a pretty impressive ‘pay rise’ this way.
Finally, remember that time is money – literally. The longer your pension savings can accumulate compound interest, the bigger they will snowball.
Time makes such a difference, in fact, that a person starting their pension at 20 can end up with around double the pension of someone who starts at 40, even if the 40-year old pays in the same total amount. By this same principle, a slight raising of your pension contributions could see you overtaking your minimum-contributing co-worker.
The truth is that both men and women undervalue pensions. It’s merely that the scales are naturally weighted in favour of people with uninterrupted careers.
So as women we owe it to ourselves to pay closer attention to the huge opportunity hiding in plain sight. Once you see your pension for what it really is: a tax-free high-yield investment portfolio with employer top-ups and a 25% bonus – you’ll wonder why you waited so long to make the most of it.
If you have pensions you want to combine, transfer or optimise, or if you’re ready to start accessing yours, then talk to an independent financial adviser. You can find the right one for you at Unbiased.