The UK media recently had something of a reporting frenzy when companies with more than 250 employees were forced to reveal their pay data split by gender. Many well-known names revealed that men were paid more than women, in some cases to a significant degree.
Understanding the facts behind the numbers
As is often the case with statistical data, it’s important to put the headline figures into context. The pay data did not compare men and women in the same occupation (or even similar occupations). The figures were aggregated across each organisation, hence what the really revealed was the extent to which men occupy the higher-earning roles in companies. While it’s probably fair to say that there may still be some degree of old-fashioned gender bias behind this, in some companies at least, there is also the fact that, up until recently, the UK only had maternity leave not paternity leave, which meant that in many cases financial common sense determined that it was the female half of a parental couple who took time off work when a baby came on the scene. Only time will tell whether shared parental leave (and other social developments) will erase this earnings gap in future, but for the present, a more pressing question is what to do to ensure that women can also enjoy a comfortable retirement.
Start saving early
It’s fine to make the most of your pre-child years and to enjoy the lack of either parental supervision or parental responsibility, but from a financial perspective, it’s best to balance this freedom with the knowledge that you (hopefully) will have a long life ahead of you and that a bit of forward thinking now can bring all kinds of benefits in later years. Even though your young adult years are the years in which you are at your lowest point on your career ladder, with the result that you may only be able to make what seem like very small savings, remember that those savings will have decades to grow.
Prioritise making pensions contributions when you have a family
Obviously, you have to be in work to be part of a workplace pension scheme, but there’s nothing to stop you opening a private pension when you are out of work. What’s more, if you’re married or in a civil partnership, your partner may be able to make contributions towards it on which they can claim tax relief. It may be worth having your partner make these contributions, even if it reduced the value of their own pension, since pensions are treated as taxable income, hence it can be more tax efficient to have two people in a lower tax band rather than one paying no tax and another in a high tax band. This is an issue on which it is recommended to take professional advice. Regardless of whether or not you are married, you may wish to register for benefits which confer national insurance contributions, such as (currently) Child Allowance, even if you do not qualify for financial support, so that you continue to build up entitlement to the state pension, which may not be what you want to live on in your retirement but is certainly better than nothing.
Think carefully about how to use your pension savings when you reach retirement age
The pensions freedoms introduced in 2015 have brought pensions savers vastly more choice and while choice can be good it can also be confusing, especially when you’re dealing with a topic as complex as retirement income. Because of this, it’s strongly recommended to get professional advice, so you can be sure you’re taking the decision which will give you the most comfortable retirement possible on your level of savings.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.
Tax treatment varies according to individual circumstances and is subject to change.