Young women and retirement

How much income will you need for a comfortable retirement?

Almost a quarter (23%) of women in their 20s (aged 22-29 years) would be frustrated if they couldn’t retire by the age of 60, according to new research[1]. Despite this, 10% of this group have opted out of their employer’s pension scheme, further risking their chances of retiring when they plan to.

Additionally, 35% don’t know how much income they would need for a comfortable retirement, and nearly two in three (62%) young women are concerned about completely running out of money in retirement.

Missed opportunities for early savings

Despite the clear uncertainty about their futures, the research highlights that younger women are missing out on making a significant early difference. While 19% of men start paying into their pension by age 22, just 14% of women do so, signalling a clear opportunity for more young women to start saving for a pension from an early age.

Of those who opted out of being automatically enrolled into their employer’s pension scheme, 29% said it was because they couldn’t afford to keep up regular pension contributions, and 14% said they would prefer to spend the money now. In fact, women are saving less than men towards an employer pension at nearly every point in their lives.

The growing pension gap

Acting early is key, given that the pension gap also grows with age. The difference between the pension values of men and women is 10% at the age of 25 and 50% by age 50. The research shows a significant gap between women’s expectations and the actions taken to meet those expectations.

Alarmingly, 10% have opted out of their workplace pension, meaning they are missing out on compound interest gains and, crucially, the ‘free money’ that comes with employer pension contributions.

Consequences of opting out

Opting out of your employer’s pension scheme is tantamount to taking a pay cut. When these women reach the end of their working lives, they may face a much harder retirement than those who have consistently contributed. This situation is compounded further by often having to take enforced career breaks.

The good news for anyone in their twenties is that time is on their side. Fortunately for younger women, there are steps that can robustly improve retirement outcomes if taken during their careers in their 20s. They can maximise compound gains by starting early and maximising available employer contributions.

Bridging the retirement expectations gap

It’s alarming to witness the contrast between retirement expectations and the reality that many women in their 20s will face, but it is not surprising. The cost of living crisis has made prioritising their pensions more difficult than ever. The challenge lies in the necessity of paying into a pension regularly from the start of one’s career, which is essential given the boost provided by a workplace pension.

The gender pension gap

Addressing the gender pension gap, which can expand to £100k, is crucial. By raising awareness of the importance of a pension and the impact of compounding over time on your pension pot, there’s hope that more young women can take control of their future savings today.

However, the struggle to balance immediate financial needs with long-term planning is very real. Many young women are compelled to make tough decisions about allocating their limited resources, often foregoing pension contributions to meet daily expenses.

Maximising early contributions

The reality is that early contributions to a pension scheme can significantly impact your financial future. The benefits of compound interest mean that the earlier you start saving, the more your money can grow over time. This is particularly important for women, who historically tend to live longer than men and, therefore, require more substantial retirement savings.

Despite these advantages, many young women remain reluctant to commit to regular pension contributions. The fear of inadequate disposable income now often overshadows the potential security in the future. Education and awareness are pivotal in altering this mindset.

Leveraging workplace pensions

Utilising workplace pensions effectively can substantially increase retirement savings. Employers frequently match contributions, essentially providing ‘free money’ towards your pension. Opting out of such schemes could be likened to a voluntary pay cut, forfeiting employer contributions and tax reliefs.

Offering comprehensive education on the subject is essential to motivating more young women to invest in their pensions. Understanding how pensions operate, the advantages of early investment and the long-term effects of compounding interest can empower young women to make more informed decisions about their financial futures.

Are you taking control of your financial future?

The disparity between retirement expectations and reality for young women is concerning. Commencing pension contributions early, even with modest amounts, can make a significant difference in closing the gender pension gap and ensuring a more secure financial future. For further information or personalised advice on enhancing your retirement planning, please contact us for expert guidance tailored to your individual needs.

Source data:

[1] The research was conducted online by YouGov on 5,072 nationally representative respondents in the UK between 21/03/2023 – 05/04/2023. A further survey of 1,352 ethnic minorities in the UK took place between 21/03/2023 – 06/04/2023.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.