More than a third of women face poverty in retirement driven largely by career breaks that interrupt earnings and pension contributions, according to Scottish Widows’ latest Women and Retirement Report.
The research highlights that 58% of women at or near retirement have taken a career break compared with just 12% of men. Women are also 12 times more likely to pause their career to raise children, with 36% doing so compared with 3% of men.
By age 55, one in four women have spent more than five years out of the workforce. Scottish Widows calculates that a five-year break taken at age 35 could reduce a woman’s pension pot at 67 by £69,380 compared with someone who remains in continuous employment. The example shows that women taking such a break could reach retirement with £512,000 compared with £581,380 for those who do not pause their career.
The Impact of Limited Financial Planning
Financial planning gaps intensify these challenges. While the report shows that 61% of women manage their money slightly better than men during career breaks, two fifths did not plan financially before stepping away from work. More than half never considered how the break would affect their retirement income and 42% said the time out reduced their ability to save.
This contributes to a widening gender pension gap. The median total private pension for women at retirement is now £173,000 compared with £286,000 for men. The gap has increased to £113,000 or 32%, up from £100,000 or 30% last year.
Susan Hope, Retirement Expert at Scottish Widows, said, “Millions of women in the UK are living with the gender pension gap and they don’t even know it. To achieve true equality in retirement, we need to make sure career breaks don’t break women’s future financial security.”
Hope said greater awareness of shared parental leave is essential. She explained that four in five women who had children in the last decade did not use the policy and that 8% reported their spouse’s workplace was not supportive. She described shared parental leave as “critical” in helping balance career breaks between parents and reducing long-term pension gaps.
Long-term Effects on Women’s Financial Futures
Hope added that spouses contributing to women’s pensions during career breaks can help maintain savings levels. Known as third party contributions, these payments can maximise tax relief for those who have reached their allowance and help address gaps in contributions when income is reduced. Hope also noted the ongoing importance of employer contributions during maternity leave, noting that many workplace schemes calculate these based on pre-leave salary.
The report also features insights from Dame Denise Lewis (DBE), who has partnered with Scottish Widows on the launch. She said her own experiences in sport and broadcasting showed the need for a financial plan during periods of reduced income.
“Those experiences taught me first-hand how important it is to have a financial plan that gives you security when your income is more up and down – something so many women can relate to,” she said. She emphasised that stepping away from work has a lasting effect on women’s futures and encouraged more open conversations at home about long-term financial planning.