Single mothers in the UK are facing a £246,000 shortfall in their pension pots compared with the average couple, and this is being further exacerbated by rising inflation and falling wages.
A single mother has, on average, £29,000 of assets in her pension, versus £275,000 for a couple with children.
Of the 1.7mn single mothers in the UK, 40 per cent are not even a member of a pension, according to Scottish Widows’ latest women and retirement report.
“Single mothers are much more likely to be exposed financially, cutting back in ways that jeopardise their wellbeing,” said Jackie Leiper, managing director of workplace savings at Scottish Widows.
Single mothers are much more likely to be exposed financially
Jackie Leiper, Scottish Widows
“Despite increased reporting, stubborn gender pay gaps persist for women across the UK.
“Current economic conditions are making it harder than ever to fix the deep inequalities that underlie the pensions gap, with the retirement savings of women deeply impacted by key life events such as divorce or motherhood,” she continued.
“Providers, regulators and employers must collaborate urgently to address this crisis – from reconsidering the auto-enrolment threshold to far greater investment in childcare support – to help the most vulnerable in the near term.”
Women need to be able to live off their retirement savings for longer
The average man aged 65 to 74 has more than £250,000 of pension assets, compared with a woman who has less than £150,000, according to the report.
With women living longer than men, they need to be able to live off their retirement savings for longer.
Scottish Widows has calculated that the average woman would need £85,000 more in retirement savings than the average man for a comparable quality of life in retirement.
This gap is partly down to substantially more women than men falling into lower-income groups.
There are nearly 2.5 times as many men earning more than £50,000 than there are women, data from the Office for National Statistics shows.
This income spread also varies across ethnicities. Chinese women earn over 25 per cent more than white British women, whereas Pakistani women earn nearly 10 per cent less than white British women.
In addition, black Caribbean women earn more than white British women (8 per cent), but black African women earn 2.6 per cent less.
Cost of living crisis
Wider macroeconomic factors such as the ongoing cost of living crisis are exacerbating these gaps in pensions wealth.
Wage increases have not kept pace with inflation, meaning real wages have declined and eaten away at consumers’ spending power.
The decrease in the real value of regular pay, excluding bonuses, was faster in May this year than at any point in the past two decades, according to the ONS
Inflation is compounding the issue of falling wages – on November 16, inflation rose to a 41-year high of 11.1 per cent.
In August, the Bank of England’s monetary policy report estimated that inflation will be 9.5 per cent in a year’s time. This means that, on average, prices will have increased by more than 20 per cent over the course of just two years.
Scottish Widows’ report stated that there is evidence the rising cost of living is having a direct impact on retirement savings.
Pension savers face ‘double’ tax hit as inflation soars
The government’s decision to freeze the lifetime allowance could yield up to £2bn for the Treasury, double the £1bn it previously projected due to a surge in inflation this year.
More than a fifth (16 per cent) of women said they have cut back on their retirement savings to cope with rising prices.
This is similar to men (15 per cent), though men are taking from a bigger pension pot and a bigger portion of income. The average reduction in contribution for women is £152 a month.
The report found that a woman aged 40, who has reduced her retirement savings by almost £150 a month for one year, could be left with more than £3,000 less in her pension pot by the time she retires.
This article originally appeared on FTAdviser.com
