State pension gender gap narrows - but difference in size of private pots is still huge

The state pension gender gap has shrunk to 1 per cent, less than a decade after a major overhaul aimed at gradually equalising payments.

Women received £208.15 per week on average on reaching 66 and men got £209.95 in the year to November 2024, new Government figures reveal.

But this stands in stark contrast with private pension pots, where there is a 48 per cent gender divide in the run-up to retirement, according to recent official data.

The state pension is the bedrock of most people's retirement income and is currently worth £230.25 a week if you qualify for the full amount, or nearly £12,000 a year.

But although couples can get by on two full state pensions, financial experts warn individuals face a struggle on only one and recommend building a private fund too to achieve a decent standard of living.

Former Pensions Minister Steve Webb, who was the architect of the new state pension introduced in 2016, says one of its goals was to gradually eliminate the gender gap in state pensions.

Webb, who is now a partner at LCP and This is Money's pensions columnist, says: 'The new system had to be phased in gradually, not least to protect the rights people had already built up under the old system.

'But those transitional protections are gradually working their way out of the system, with the result that the gap between men and women is reducing with every passing year.'

Webb, who obtained the state pension data under a Freedom of Information request, notes the average state pensions paid to men and women who retired under the pre-2016 state pension system differ greatly.

Men get an average of £217.30 compared with £186.44 for women - and the latter includes many widows who were on much lower state pensions when younger, he points out.

But Webb says he is delighted that the battle against the state pension gender gap is nearly won for those retiring today.

'When there is so much negative news about gaps between men and women when it comes to pensions, these figures show that things can be changed provided that there is the political will to do so.

'There are however, far too many women who have already retired who are living on reduced pensions and I will continue to campaign for them to be treated fairly, including by rooting out all of the errors which have led to so many being underpaid for so long.'

Separate private pension gap data was published by the Government last month which was based on the median pension wealth (the middle figure in the range) of people aged 55-59 in 2020-2022.

The gap overall was 48 per cent, but it was 39 per cent for people with only defined benefit pensions, also known as final salary pensions. These are guaranteed until you die but almost phased out unless you work in the public sector.

However, the gap is a massive 75 per cent among people only saving into defined contribution schemes, which are prevalent in the private sector and depend on building and investing a pension fund for old age.

For those with both types of pension the gender gap is 52 per cent, but younger generations who work for private companies are likely to have just defined contribution funds.

Rachel Vahey, head of public policy at AJ Bell, says the 48 per cent figure is 'truly appalling' and 'quite frankly unacceptable'.

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She blamed it on women earning less, and then working fewer hours after they have children, despite saving around the same percentage of salary as men into a pension under auto enrolment.

'The wheels come off women’s retirement saving when they start a family,' Vahey says.

'The gap is much smaller at younger ages, at 22 per cent for those aged between 25 and 29, but rises dramatically for older women.

'Those women who work in the public sector fare better. The gender pensions gap for those that only hold defined benefit pensions – now mostly only available to public sector workers – is much lower.

'This throws into stark relief the chasm between private sector workers and their public sector counterparts.'

Vahey suggests changing pension risk warnings to be more appropriate for a female audience, and reducing the auto enrolment earnings trigger of £10,000 because some women have several part-time jobs that all fall below it.

'Change must also come from the labour market, such as through pay, affordable childcare and more shared parental leave,' she adds.

Hannah English, head of DC corporate consulting at Hymans Robertson, says the gaps in gender private pensions remain 'stubbornly high', and she called on the Government to make auto enrolment changes like lowering the earnings limit and reviewing the auto enrolment entry age of 22 as soon as possible.

'Reducing the age limit would not only support all savers to save more into pensions and retirement, it could also help reduce the gender pensions gap further.

'It would allow female employees the chance to save more over a larger proportion of their working career.

'In effect, this would avoid the dramatic fall often as a result of taking time out for child care or other caring responsibilities, which often fall to women later in life. All of which sees their pay and savings levels drag behind male peers.'