Older women are making pension withdrawals at half the rate that men do after retiring with vastly smaller funds, new research reveals.
Pension freedom reforms give over-55s the power to tap retirement pots as they wish, but women are withdrawing £4,100 a year on average while men take out £8,500.
This is because women are reaching retirement with pension savings worth £59,000 on average, just two-fifths of the £143,000 held by men, according to the study by financial services firm AJ Bell.
Pension gap: Women are retiring with vastly smaller retirement funds than men
The firm puts the findings down to the disparity in salary and bonus levels between women and men during their working lives, something which is highlighted by gender pay gap data that all employers above a certain size are now required to publish.
The survey found that 75 per cent of women are worried about running out of money in old age versus 62 per cent of men, which AJ Bell says could be because women simply have less or reflect that they are more cautious.
However, AJ Bell notes that the lower pension withdrawal rate doesn’t appear to be because women are spending their pots more carefully.
As a percentage of their overall pots, women are taking out 7 per cent a year, compared to men’s 6 per cent, it points out.
AJ Bell also found:
- Some 63 per cent of women feel in control of their retirement income compared with 77 per cent of men
- Paying for long term care worries 75 per cent of women and 65 per cent of men
- When it comes to inheritance issues, 37 per cent of men want to have something left from their pensions to pass on to family against 52 per cent of women.
AJ Bell surveyed 1,500 British adults aged 50–70 about their retirement savings. The research focused on ‘defined contribution’ pensions, which are invested to provide a fund for retirement, since pension freedoms can only be exercised over this type of savings. See the box below.
WHAT IS PENSION FREEDOM?
Pension freedom reforms have given over-55s greater power over how they spend, save or invest their retirement pots.
Key changes from April 2015 included removing the need to buy an annuity to provide income until you die, giving access to invest-and-drawdown schemes previously restricted to wealthier savers, and the axing of a 55 per cent ‘death tax’ on pension pots left invested.
The changes apply to people with ‘defined contribution’ or ‘money purchase’ pension schemes, which take contributions from both employer and employee and invest them to provide a pot of money at retirement.
They don’t apply to those with more generous gold-plated final salary or ‘defined benefit’ pensions which provide a guaranteed income after retirement.
However, those still saving into such schemes can transfer to DC schemes, provided they get financial advice if their pot is worth £30,000-plus.
However, about a third of those asked had some form of final salary or career average pension. State pensions were not covered by the study.
AJ Bell found 63 per cent of those asked were aware of the pension freedom reforms, but fewer than one in ten of those rated their knowledge of the rules as very good, with over half admitting their knowledge was only fair and 13 per cent that it was poor.
Some 71 per cent of men said they were aware of pension freedoms, compared with 54 per cent of women. And 39 per cent of men versus 25 per cent of women felt they had good or very good knowledge of the rules.
Tom Selby, senior analyst at AJ Bell, said: ‘While the disparity in salary and bonus levels between men and women is slowly beginning to get the coverage and political attention it deserves, the retirement apartheid between the sexes remains comparatively ignored.
‘There is no doubt that, when it comes to pensions, women have long been second-class citizens in the UK. Over the longer-term, as the gender wage gap closes, automatic enrolment contributions rise and the single-tier state pension is eased in, the chasm between the pension outcomes of men and women should close.
‘That does not help women who are approaching retirement now, however. These women face a battle to increase their pension contributions as much as they possibly can in order to boost their retirement savings.
‘The reality for many is they are going to have to work for longer before they can afford to start drawing down their pension.’
Pension freedoms: AJ Bell surveyed 1,500 British adults aged 50–70 about their retirement savings
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