Could equity release help women close the retirement income gap?

Meeting the challenge of an income shortfall in retirement

Written in line with our editorial policy.

It’s an unfortunate fact that women tend to have less money to live on in retirement than men. So, can equity release provide a way for women to fill the retirement ‘income gap’?

The gender pensions gap is a persistent issue that leaves many retired women with less to live on than men. Women tend to have smaller pension pots, and have a longer average life expectancy. Factors like these combine to create particular financial challenges for retired women, especially for those who are single.

However, for women who are homeowners, the equity in their property could offer a way to supplement income in retirement. Equity release is potentially one way to access some of that equity – without having to move home.

To help you understand the wider issue of the gender pension gap, and potential solutions, we’ll cover the following points in this article:

• What is the gender pensions gap?
• Obstacles to pension savings
• How equity release could help
• Other financial solutions for women in retirement
• How to get specialist equity release advice

What is the gender pensions gap?

The gender pensions gap is a critical issue, highlighted by the Women & Retirement Report 2023 from Scottish Widows. According to the report, a significant number of women are struggling to save enough for retirement. Nearly 39% of women are unlikely to achieve even a basic standard of living in retirement, and this figure rises to a concerning 60% for divorced women.

Looking specifically at pensions, women with private pensions are expected to retire with pots that are, on average, 37% smaller than men’s. For instance, women are projected to retire with an average private pension of £150,000, compared to men’s £235,000. Of course, these are average figures and thousands of women and men retire with much smaller pension pots.

The problem is compounded by women’s longer life expectancy. For example, women born in the past few years are expected to live, on average, to 82.6 years, compared to 78.6 years for men. 

This means that women tend to have smaller pension savings, but they need to stretch them out over a longer period. A shocking statistic to illustrate, also from the Scottish Widows report, is that after paying for housing expenses, the average woman will have around £12,000 annually in retirement, compared to £19,000 for men.

The report also highlights the so-called “motherhood penalty.” A staggering 75% of single mothers are not on track for even a minimum retirement lifestyle due to career interruptions, lower earnings and reduced pension contributions. It leaves three in four single mothers potentially living in poverty when they retire, struggling to afford basics like food and heating.

Jackie Leiper, Managing Director Scottish Widows, said: “Despite how familiar we all are with the gender pension gap issue, the long-term impact on the day-to-day reality for women when they retire is less talked about. Understandably, single women affected by the motherhood penalty and the cost of solo parenting may be more focused on how to support their family today, but this report shows the struggle they could face by the time they become grandmothers.”

Obstacles to pension savings

The reasons for this disparity are not rooted in women’s unwillingness to save for their future. Instead, the report by Scottish Widows found that many women face several obstacles that prevent them from building up a substantial pension pot:

Career breaks to have children

Women are more likely to take breaks in their careers, particularly during and after maternity leave. This can slow career progression and limit their earning potential, reducing the amount they can contribute to their pension. According to the 2023 data from Scottish Widows, nearly half (44%) of mothers spend all five working days looking after their children. That compares to 16% of fathers.

Lack of affordable childcare

For many women, especially those with young children, the high cost of childcare can make it difficult to return to full-time work, limiting their ability to save for retirement. The average cost of full-time professional childcare at a nursery for a child under two in Great Britain is £14,071 per year. That’s 64% of the take-home pay of the average person in Great Britain.

Pay gap between genders

Women generally earn less than men over the course of their working lives. The gender pay gap currently stands at 14.3% according to the Office for National Statistics (ONS) meaning women often have less money available to put into pensions.

Dropping to part-time hours

A greater proportion of women work part-time due to childcare or other caregiving responsibilities. This reduces their overall income and, subsequently, the amount they can contribute to their pension. According to Scottish Widows, a permanent move to part-time work at age 30 can cost women £47,000 in their pension pot. ONS data shows that in 2023, 86% of men were in full-time work compared to just 61% of women. 

Divorce settlements

After typically paying less than men into their pension fund during their career, going through a divorce can contribute further to the gender retirement gap. The data reveals that 60% of divorced women never discussed their pension assets during divorce proceedings. 

It found that more than a quarter believed that pensions weren’t even part of the process. Since men typically have larger pension savings, failing to address this can lead to unfair financial outcomes for women, leaving them with a much smaller retirement income.

How equity release could help

For those of us who own our own homes, equity release offers a potential way to address a financial shortfall in retirement. By accessing the wealth tied up in our property, we can supplement our income and live more comfortably. 

A lifetime mortgage, for example, can enable a homeowner to borrow against their property’s value while continuing to live in it. The money can be taken as a lump sum, or can be taken in smaller amounts as and when needed with a drawdown lifetime mortgage.

The tax-free cash could cover expenses like home improvements, paying off your existing mortgage, gifting to family and more. A main advantage is that you won’t have to make any mandatory monthly repayments. Instead, the loan plus accrued interest is paid back via the sale of your home when you pass away or move into long-term care. 

However, there are voluntary payment options available including interest-only equity release  that can reduce the overall cost of taking out an equity release plan. 

Equity release may be a solution for you – but it’s not right for everyone. It’s essential to consider all the pros and cons of equity release, including how having a plan will reduce the value of your estate. An equity realty adviser will explain all of this to you and search for the right plan for your needs.

Other financial solutions for women in retirement

While equity release can be a valuable tool, it’s not the only solution. A balanced retirement plan should explore several strategies:

Increase pension contributions. If you are still some way from retiring, can you contribute more to your pension fund? If you are in a workplace scheme, you would benefit from employer contributions, as well as government tax relief. You should ideally seek professional financial advice to explore this further, especially in the last few years before retirement, as other options for saving or investment may be more suitable.

Maximise your State Pension entitlement. Ensuring you get your full entitlement to State Pension can make a big difference. If you have taken time off work, check whether you can increase your State Pension income by filling gaps in your National Insurance record through voluntary contributions.

Work longer or part-time. For women able to continue working, either delaying retirement or working part-time can provide additional income and allow for further pension contributions.

Downsizing. Selling a larger family home and moving to a smaller property can release capital without the need to borrow. This option might appeal to women who wish to avoid debt or leave a larger inheritance for their families. You can read more about downsizing and other alternatives to equity release.

How to get specialist equity release advice

Seeking professional advice about equity release is essential to make an informed choice that aligns with your long-term goals. Our selected advisers are here to help you explore your options and check if a plan is the best way forward for you right now. If it isn’t, they will tell you. 

To get in touch, please call 0800 096 2215, or request a call back for a time that suits you, and we will arrange a call with one of our selected advisers. Alternatively, you can use our free equity release calculator to see how much you could unlock. 

All the advice and quotations you receive (containing the latest equity release rates) will be given free of charge. You’ll only pay a fee for advice if you choose to go ahead with a plan, and you can typically pay this from the money you release from your home.

Sources:

The gender pension gap: Women and Retirement Report 2023. Scottish Widows. Accessed 03 October 2024.

Life expectancy for women and men: National life tables – life expectancy in the UK: 2020 to 2022. Office for National Statistics.  Accessed 03 October 2024.

Gender pay gap 14.3% in 2023: Gender pay gap in the UK 2023. Office for National Statistics. Accessed 03 October 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn