Bridging the Gender Pension Gap: Why Women Retire with Less

In this episode of MyFamily Pod, Jane Tenquist, Head of Family Law at Myerson Solicitors, speaks with Sally Beresford, a financial planner at Evelyn Partners. Together, they explore the critical issue of why women often retire with significantly smaller pensions than men and discuss practical steps to ensure financial security during and after divorce.

🎙️ Key topics include:

• The gender pension gap and why it exists.
• The importance of pension sharing during divorce.
• How cash flow modelling helps with financial planning.
• Steps women can take to boost their pension pot.

Don't miss this insightful conversation packed with expert advice for those navigating divorce and financial settlements.

Transcript

UNKNOWN: 0:00

Bye.

SPEAKER_00: 0:18

Hello, welcome to my family podcast. I'm Jane Tenquist. I'm head of the family team at Myerson and I specialize in financial remedies on divorce. I'm here today with Sally Beresford, who is a financial planner from Evelyn and Partners in Manchester. Sally specializes in helping clients on divorce implement their pension sharing orders and restructuring and rebuilding their wealth post divorce. The topics we're going to discuss today are why is it that women are so underpensioned? Why is their pension so much lower than men's in general? Welcome Sally for joining us today. We're going to talk about why is it that women in general have far less pension to men. As a family lawyer I've noticed this feature during my work dealing with pensions on divorce and I was wondering why from your point of view as a financial planner who advises people on implementation of pension sharing orders, whether you've also noticed this feature? Yes, Jane, you're absolutely right. We see this a lot. I mean, most people have heard of the gender pay gap, but there absolutely is a gender pensions gap as well. And there's lots of research into what that means, what the differences are, why that is the case. The Department of Work and Pensions published a paper in 2022 which looked at the value of men's and women's private pension savings that weren't yet in payment at age 55 that said that they found that men have around 35% more pension value than women that had gone down so the stats were kind of getting better for women from the previous survey and paper and And Charles Stanley have quoted a stat which shows that women retire on average with a pension pot valued at£69,000. It's really low, isn't it? Yeah. So that's a difference of nearly£137,000. So we see this a lot. And it's a constant issue in the type of advice that we are providing in terms of women having more pension savings. There's another stat that says that by 2026, 60% of the UK's wealth will be in the hands of women. So whether that's actually pension fund values or whether that means kind of the control of the family finances, I'm not quite sure. And why do you think that is that women have far less pension? and we've gone through the statistics, but why do you think that women have far less pension than men? There's a variety of reasons. I mean, in general, there are less women in work than men, less women are employed. The women that are employed... do tend to be paid less. We see that through the gender pay gap studies. Legal in general have said that by the age of 27, a woman is already earning on average 10,000 pounds a year less than a man. So that then translates into the pension contributions. You might be paying the same percentage, but your salary is lower. So in monetary terms, that contribution is less. More women do tend to work part-time or in a temporary position than a man might do and therefore their annual pay is generally lower because they're working less hours or less days. And that has an impact then on auto enrolment. The government obviously introduced auto enrolment to try and encourage everybody to contribute to a pension. But there are certain parameters on when you are auto enrolled or not. So you're not automatically enrolled into a pension if you earn less than£10,000. So if you're a lady in a part-time job and your salary is less than£10,000, you're not going to automatically get added to a pension scheme. You can ask to get added to it if you earn over£6,000-ish and your employer then contributes. But I think because you wouldn't automatically be auto-enrolled, you probably just ignore it and carry on and don't think about your pension. And then there's kind of more obvious things like there's the career interruptions. women going on maternity leave, choosing to stay off work and not returning to work. So the pain reduces during the period of maternity leave, might come to a complete stop. They may have a career break rather, staying at home looking after the children and might not return to work. And they're just not thinking then about the pension contribution. The husband perhaps is still in work, still contributing to his pension, but they're not thinking of the finances as a kind of a household budget. the man's got his pension contribution going out automatically through his pay but they're not thinking of i should also be paying into a pension i should also try and keep those contributions going as a divorce lawyer i i find that pensions are a topic that lots of people don't understand and um Some women in particular are very focused on what's going to happen in the immediate term and they want to rehouse themselves in a house and pension is of secondary importance. But quite often the pension is more valuable than the equity in the matrimonial home. And I often advise people to go and get some advice from a pension financial planner or from a pension actuary on divorce to give them options in relation to pension sharing and their best options really and sometimes people are reluctant to invest in that sort of advice but I think that divorce is the most expensive and the biggest financial decision that you'll ever make during the course of your life and it's important in respect of pensions in particular, that you get the right sort of advice. So in relation to pensions, can you sort of explain, Sally, the valuation of whether the value of a pension is based on the CEV, the cash and equivalent value of the pension or not? Well, I suppose just to cover, there are two kind of main types of pensions. One where we're looking at the time of divorce and we're looking for the cash equivalent values. You'd be referring there mostly to a defined benefit or final salary pension scheme. Whereby that pension scheme has a known future value. So for the member of the pension scheme, there's a formula that's calculated that says based on your length of service, your salary and the accrual rate, we can tell you at retirement age, this will be the pension that you built up. And that's where that cash equivalent value is needed. At the time of divorce, the cash equivalent value is looking at what would it cost the scheme to provide those benefits to that member. The other type of pension scheme is the defined contribution scheme. So the defined contribution scheme are now more popular. That's the type of scheme that you would be auto enrolled into if you were in a workplace pension. And that is quite straightforward. The value is what it says on that statement. It's that monetary pot amount. But the difference with that type of scheme is you know what you contribute in, you know what your employer contributes, but you don't know the future benefit. There is no guarantee of what comes out of that pension. But from a valuation point of view, it's very straightforward. It's just what the statement says. Now, the cash equivalent value on a defined benefit or a final salary scheme needs an actuarial calculation. And scheme by scheme will be different. The assumptions made on investment returns or interest rates, for example, may be different per scheme. So you might find that, for example, if one person has got a guaranteed future pension of£10,000 in one scheme, that might have a value. I'm just picking figures now of£300,000. But another scheme also might provide a pension of£10,000 per annum. But that cash equivalent value might be different.£200,000 because the scheme will be doing the valuation slightly differently based on that scheme assumptions. What's really important is to understand that if there is a pension sharing order of a defined benefit scheme, a lot of defined benefit schemes don't allow a share of pension to an ex-spouse to remain within that pension scheme. they will say you have to take what's called an external pension credit and find a home for this value of pension that you've been awarded. Let's say it's 25% of the scheme cash equivalent value. So you've got to be really aware that you're giving up that known guaranteed pension promise and you're taking your pension credit into, probably, a defined contribution scheme. And you've then got to look at, well, what will this capital amount of pension fund value provide me with in the future? And that's really where you need... Advice, financial advice, because as financial planners, we can understand the complexities of the scheme. We can understand the different options. Let's say when you are in a defined contribution scheme in terms of drawing down an income, can you take some tax free cash or not? At what age are you going to be able to do this? What are the tax rules on structuring that income for you? So just going back to what you said earlier, the financial planning element of advice is really crucial. Because we could save thousands and thousands of pounds. We can help you even understand and negotiate a better financial settlement and get the pensions shared in the best way, into the best new scheme, implement it correctly, and then the income and the benefits set up in the best way. So sometimes when clients come to see me, they... I'm really not interested in pension because my priority is to find a house for themselves and their children. And they just simply don't understand pensions or they're just not interested in having a pension sharing order because they feel morally that's their priority. husband's asset and not theirs and they don't want to ignore to annoy their husband by by touching touching the pension because you know that's his sort of um uh he he doesn't want to negotiate on pensions why why why would what what are the dangers of ignoring pensions on divorce and what advice would you give give to those people sally Yeah, I would say I do. I completely understand why somebody might say that. That emotional aspect, isn't it, of I just want the security, the comfort of the home, providing the home for the children, for example. And you're absolutely right. I think there is just a lack of understanding of what pensions mean, what they do, how they can provide for you. Again, there's more stats on, you know, legal in general have said 33% of women don't understand pensions and they are less likely to have been engaged with a financial planner. They're less likely to have an ISA, stocks and shares ISA, less likely to have a pension. So I think as a financial planner, we can help initially, again, just with that education of the value of a pension. Yeah. Women live longer than men. The average life expectancy of a woman is much longer. It's roughly age 82 and a man's 78. So I think for the long term financial security, although it might give somebody comfort initially to have secured the family home, they really do need to think of, well, how am I going to provide myself with an income? in the future and that's where those cash flow modelling tools can come in and help just demonstrate in a nice colourful chart that actually means something where we can look at figures up to somebody's 100th birthday. Can you explain a little bit about cash flow modelling and how that works then? Yeah, so cash flow modelling is really just a very sophisticated tool. The better the information we put in, the better the output is. But essentially, we feed into this tool a client's income, expenditure, assets, debts, for example, and we can plot for every age what that income and outgoings might look like and what a client's overall asset value looks like as well and how it's made up. So what are the sources of income? What is the expenditure? What makes up the assets? Is it cash? Is it investments? Is it pension? Is it property? And we can use the tool to model different scenarios. So in the case of divorce and looking at financial settlements, we can actually say, what would it actually mean in this case where you're being told that you could have a settlement of X amount of hundreds of thousands of pounds or X Or you take the family home instead of that. And a maintenance payment of X amount a month for so many years. What does it actually look like in real terms? Are you going to be able to support yourself? Is it what you need? When might it run out? When might you see some shortfalls? Or actually, does it all look suitable? And you are going to be able to meet your needs. Because numbers on a spreadsheet really don't mean anything. But the numbers within a tool that allow you to see your financial future actually mean something. And we can use this tool sat with you and a client around the table to say, let's just have a look if the financial settlement was structured in a different way. So if you had an initial... larger bits of capital and smaller maintenance payments or larger maintenance payments and smaller capital, or you had this percentage of a pension or this percentage of a pension, what does it actually mean in terms of the value of your assets over your lifetime and the ability to use those assets to give you the income that you need? So that really emphasises, doesn't it, the importance of getting a financial planner earlier on within the divorce process so that you've got time to think about how much of a lump sum do I need in order to provide for my lifestyle for X number of years and when's the money going to run out? And it's important to sort of have all that information to be able to make the right decisions in relation to... pension pots isn't it and and lump sums on divorce really and just because just because you you're wanting the house doesn't mean that you can't have the pension but quite often people will just say well we've decided we're going to split the housing we're going to keep our pensions to ourselves and but there may be an enormous disparity between the their respective pension parts that's it and you can't really see it can you you might see a figure on a page but when you can actually plug the figures through a tool and see what that looks like I always say it gives clarity and hopefully comfort and if it doesn't give comfort then we know the steps that we need to make Yeah. Yeah. Yeah. Yeah. What's the income going to look like? What are the underlying assets? What assets will you be left with at the end of your lifetime? Obviously, there are some assumptions in there for things like inflation or interest rates or the investment return, but we make sure that it's specific to that client. So, for example, if it's a lady who's got no investment experiences, a bit nervous, it's not appropriate to assume that her invested assets or the pension share that she's going to receive and then be invested. would be invested at a high level of risk we're not going to plug into the tool that she receives a seven percent a year return we're going to put into the tool a more realistic investment return of three percent a year for example you know it's really tailored specifically to that individual yeah those women have different um investment approaches don't they in terms of their risk profile generally compared to men it's back to that same thing isn't it of the knowledge and the education and the comfort of understanding finances and because women live longer than men it would make sense that you do have a pension entitlement to use in the future if you don't take any of the pension and you have the family home, at some point you're going to have to sell that home, aren't you? And you're going to have to reinvest the proceeds somehow to buy a smaller house, let's say, and then reinvest that money. But the cash flow tools can also help look at the tax position as well at different points in life. So what's the most tax efficient way for you to receive a settlement? What does that look like in the future? I think people perhaps underestimate what their retirement cost might be. how much might they spend so there's a body called well it's the retirement living standards report looks at each year what level of income you would need to have either a minimum or moderate or a comfortable lifestyle and they include within that things like the types of holidays that you may take or how often you might holiday and you know is it Is it overseas or is it in the UK? And how much would you spend on birthdays and Christmases? Or how often do you change your car and make gifts to charity and things like that? But they say that a minimum single person lifestyle is£14,500 a year. Moderate is£31,300 a year. And a comfortable lifestyle is£43,100. So I kind of refer to that report as a way to say... What kind of lifestyle would you expect to have? And most people certainly want comfortable. When clients come to see me, I'm really not interested in pension because their priority is to find a house for themselves and their children. And they just simply don't understand pensions or they're just not interested in having a pension sharing order because they feel morally that's their priority. husband's asset and not theirs and they don't want to ignore to annoy their husband by by touching touching the pension what are the dangers of ignoring pensions on divorce and what advice would you give yeah i would say i do i completely understand why somebody might say that that is that emotional aspect isn't it of i just want the security the comfort of the home providing the home for the children for example um and you're absolutely right I think there is just a lack of understanding of what pensions mean, what they do, how they can provide for you. Again, there's more stats on, you know, legal in general have said 33% of women don't understand pensions and they are less likely to have been engaged with a financial planner. They're less likely to have an ISA, stocks and shares ISA, less likely to have a pension. So I think as a financial planner, we can help initially, again, just with that education of the value of pensions a pension um and women live longer than men the average life expectancy of a woman is much longer it's you know roughly age 82 and a man's 78 so I think for the long-term financial security although it might give somebody comfort initially to have secured the family home they really do need to think of well how am I going to provide myself with an income in the future and that's where those cash flow modelling tools can come in and help just demonstrate in a nice colourful chart that actually means something where we can look at figures up to somebody's 100th birthday. I quite often use financial planners during the course of divorce proceedings to assist with helping in formulating the joint letter of instruction to the pension actuary or in um, raising questions after the pension report has come in or deciphering the reports because sometimes they're very complex documents and it helps to have a financial planner to explain the jargon sometimes and what that means, especially if there are lifetime allowance issues or crystallised and uncrystallised benefits, to understand the terminology. So it's really important to have a financial planner to assist you going through divorce and also in relation to implementing pensions post-divorce and making sure that you put your pension credit into the right scheme and that it will... you know, generate the income that you need from it. So it's really important to get the right type of advice. As you said, we can help at those early stages. As a financial planner, I'm sure I'm right in saying all financial planners would like to be involved in that process as early as possible. we can help with the modeling tools that we use. So the cashflow planning, we can help look at what that individual's financial future may look like based on different settlements, a different share of pension, what that actually means in real terms, because a client quite often is completely bamboozled by numbers on a spreadsheet. They don't really mean anything, but when you put it into that cashflow modeling tool and project forward, what the financial position looks like, it really does actually need something and can help you make those informed decisions. Working with a client going through divorce at a very early stage, particularly as you said earlier, sometimes it is the female who may not have been involved in the family finances, doesn't know the detail of them, doesn't understand what a pension is or an ISA is. We can help really early on with just that financial education, the comfort, providing them with more knowledge. And obviously, you know, knowledge is power, allowing them to feel in a more powerful position to say, I understand this. I can see now what this means to me in the future. And I can now make a much better informed decision. I know I'm often asked by clients when we're going through the divorce procedure you know if you've got a pension pot why can't we just divide it in two and not get a pension actually involved but sometimes arithmetically dividing it in two may not actually mean that both of the parties have equal pension in retirement and it's It's important that we get a financial planner involved at that stage too so that the clients understand the different benefits involved and that equality of capital may not mean equality of income. And it's important that we ask the right questions to the pension actuary at the stage when we're instructing how to equalise pensions, whether... equalized pensions meaning just cut everything down the middle or does it mean what sort of pension would we have if we retired at age 60 and would that mean exactly equal pension sharing or would it mean an alternative percentage and sometimes people struggle to grasp that you know about equality of income and equality of capital Yeah, absolutely. And as you said earlier, a financial planner can help you draft that letter of instruction to make sure that you're going to get the most from it. You know, not to ask for lots of different retirement ages on lots of different alternatives. Because as you said, the reports are complex. They are long. So you want to make sure that you're asking for the right information. questions initially to get the right outcome that it actually means something it will save costs and it will save time and most actuaries or pension on divorce experts the people that are actually going to write those reports i think are quite happy for you to pick up the phone to them as well and say can i just talk you through this case what should i be looking for can you give me a Quite often I'm asked by clients, especially if they've built up pension prior to marriage and they have a decent pension pot prior to marriage and then they get married and then the marriage breaks down, that, well, that's my pension. I paid into it. That's mine. I don't want my ex-spouse to have a share in that. She can have a share of the house, but not the pension. And sometimes it's very difficult to explain to people that sometimes it is possible to protect your pension if you're marrying later on in life by way of a prenuptial agreement. But in a long marriage, it is quite difficult to succeed on arguments in relation to ring fencing, pensions acquired prior to marriage if there's been a long marriage afterwards yeah you're absolutely right and the pension advisory group that published the first paper in 2019 have published a second paper this year and that the PAG pension advisory group report is really clear it emphasizes that for needs cases that there shouldn't be any assets, should not be ring-fenced. And it's very clear on if a client has been in a long-term relationship and they've gone from cohabitation seamlessly into marriage, then they should consider the pension accrual period as that whole period of time, not just from the start of the marriage to the end of the marriage. And so the PAG guidance, which was originally written, as I said, in 2019... designed to help improve the knowledge and practices related to pensions in divorce cases is really clear on that and obviously gives lots of guidance there for practitioners. Yeah. Quite often people are cohabiting for long periods of time before marriage and they just don't know that cohabitation prior to marriage does count as a period of the marriage as far as... financial remedy proceedings are concerned. So looking at women generally, do you have any advice Sally as to how women could increase their pension pot in any way? So I think just generally a way to improve the pension is Firstly, kind of make sure that you're getting paid correctly, that you think you're on the right pay for the work that you're doing. And if not, ask for a pay rise. Join that workplace pension scheme. Don't opt out of it. Ask to join it if you're not automatically enrolled. And make sure you keep those pension contributions going. Some employers will also say we will match your contribution if you pay X amount. So I would encourage clients to try and maximise those matched contributions because this is free money coming from your employer that you're going to give up if you don't join the scheme or don't match the pension contributions. I think people in general as well as women just need to make sure that they're starting paying into a pension scheme. as soon as possible. You'll be auto-enrolled from the age of 22. So if people are going through university and then into a graduate job, make sure you join that pension and just start as early as possible and try not to stop contributing during career breaks. So when you are a maternity leave, try and keep paying those contributions. Those pension contributions, see them as part of the household budget. Don't just let your husband keep his pension ticking over quite nicely based on his wage. Make sure that there's some contribution into your pension. So even if you don't have earned income in a tax year, you can still have a contribution paid of£2,880. per tax year you get tax relief of£720 so it's free money gross contribution of£3,600 so it might be the most you can pay without some taxable income but it's better than nothing and if you think about the length of time that that might be invested for and that cumulative growth can be huge and just for the people that already have pensions you've mentioned it earlier, use the government pension tracing service. It's a free service. It's an online form. You can ring up and ask questions and they will help you track pension funds that you've previously been in, lost touch with. Lots of people have different little pots, don't they? And, you know, it might be more helpful to have a consolidated pension pot rather than various little pots.

SPEAKER_01: 31:57

Yes.

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Here, there and everywhere. People forget what they have with previous employers, don't they? They do. And the government, or the previous government anyway, have said there was a point in time where they were thinking of having a pension that you had and it followed you from employer to employer. to try and stop you losing touch with pensions. That's not happened, but pension tracing services is excellent. And as you said, often, some of the work that I would do would be to say, let's have a look at the pensions that you've got, the ones that you built up over your working life. Let's see if we can consolidate them. It can be the best thing to do. It simplifies things, obviously, from just an administration point of view. It will probably reduce the charges because some pension providers reduce the charge the more that you invest. So if you consolidate them into one place, you might see that the charge is reduced. It's easier to understand. You get one annual statement. You can see the value. You can make sure it's invested correctly because you just think about one pot. And then equally, once it's in payment, you've just got one source of pension payment, not four or five different smaller payments coming from different pots. The only kind of word of warning is, you know, take advice. You don't want to be giving up some of your older pots that might have guarantees. So some of the old plans might have a higher than 25% tax-free cash entitlement, so you wouldn't want to give that up. Or guaranteed growth rates, for example, or guaranteed annuity rates. But generally... we try to consolidate where it's appropriate to consolidate a pension pot. Yeah, so it's important to speak to a financial planner before you do any consolidation. I think so, particularly if your plans are older in nature, they may have some of those guarantees. Yeah, okay. So as regards an older lady maybe going through divorce proceedings and maybe she hasn't got very much pension at all, but she's got estate pension, Is there any way in which you could increase a state pension? Yes, there are. There are a couple of different ways. I mean, a state pension is a valuable benefit built up by paying a number of years of national insurance contributions. So for the new state pension that started after 2016, you need 35 full years of national insurance contributions to get the maximum state pension. You need to have a minimum of 10 years just to get any state pension. But state pension in this tax year is£221.20, which is£11,500 a year. And we know it's going to go up again next year. So it'll be just under£12,000 next year. So the first thing to do is to get your state pension forecast, check what you are going to be paid and check that national insurance contribution history and see if there are any gaps. We're in a period now where... you can make up those missed years. Usually you can only go back six years, but now you can make up missing years from 2006 up to 2016. You can only do that up to April next year. So there is this chance to find out what your missing years are. The state pension team will calculate how much that costs to make a voluntary contribution to buy those extra years. So I would always suggest to my clients, get your state pension forecast. Let's see if you've got any missing years of national insurance contributions. Let's see how much it costs. It's usually really good value for money, that exchange of you handing over a lump sum of cash to get those added years of state pension because it's guaranteed income that's going to increase every year.

SPEAKER_01: 35:50

There's

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also something called the Specified Adult Child Care Credits. And they started in 2011. And this is where you might be caring for a child in your family, a child of up to the age of 12. So I see this a lot with grandparents, but it also applies to great grandparents or great great grandparents or siblings and aunts and uncles of the child. You can make a claim. because you're caring for the child under the age of 12, where the parent is also claiming child benefit for that child. But for example, if the parent's claiming child benefit and are working, they're kind of getting a double national insurance credit, so they've got a spare credit almost. So with the parent's agreement, you can ask for that credit to be transferred to you. So that helps you get an extra year or years of national insurance contributions to boost your state pension. that also applies to spouses and ex-spouses not living with a child as well. Yeah, oh gosh, I didn't know that. Very few people know about that. That's very interesting, Sally. Thank you very much. Thank you.