Retired women could run out of money 10 years earlier than men

Earlier this week, the government released new data on the gender pension gap and the findings were stark, revealing that women have just £81,000 in their pension on average by age 55-59, compared to £156,000 for men - a glaring gap of 48%.

While it is encouraging to see the gender pension gap explicitly referenced as a key area for reform, time is ticking – women are still retiring with significantly less pension wealth than men, and that money needs to go further in retirement, given longer life expectancies on average.

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To demonstrate the urgency of this issue, interactive investor calculates new figures to show the impact on women's financial well-being in retirement. These calculations are illustrative only but reveal that retired women with average pension wealth could run out of money 10 years earlier than men, and just seven years into retirement.

Key statistics:

• New analysis from the Department for Work and Pensions (DWP) shows that in 2020 to 2022, there was a 48% pension gap between men and women aged 55-59 on average. Men have pension wealth of £156,000, compared to £81,000 for women
• Assuming they claim the full state pension at age 67, women with a pot worth £81,000 could run out of money in retirement after just seven years by age 74. Meanwhile, men with £156,000 could see their pension last for 17 years on average until age 84 - based on pension withdrawals of £11,000 each year
• Women live for longer and are more likely to be single in retirement, but they have on average low levels of pension wealth and will be more reliant on the state pension in retirement.

New calculations from interactive investor show that a woman retiring with a pension pot of £81,000 at retirement age could run out of money after just seven years, until age 74. This assumes they withdraw £11,000 income from their pension each year, 5% annual investment growth and that pension withdrawals increase 2% each year, in line with inflation.

In contrast, a man who retires with a pension pot worth £156,000 and withdraws an income of £11,000 each year could see their pension pot last for around 17 years, until the age of 84.

Camilla Esmund, Senior Manager, interactive investor, comments: “We’ve long been vocal on the need for the gender pension gap to be given the urgent attention it demands, as well as the importance of greater pension engagement in the UK more broadly. 

“interactive investor’s calculations are for illustrative purposes but are indicative of the scale of the challenge for women approaching retirement.

“The gender pension gap means that thousands of women risk having little to supplement the state pension. Despite having lower pension values, women live for longer on average in retirement, and are often left struggling financially in old age once their pension wealth has dwindled.

“Women still face multiple and systemic hurdles when it comes to building pension wealth. The pay gap plays a key role here, as do other barriers. They are more likely to work part-time or take time out of the workplace to care for loved ones, leading to a lifetime of lower contributions and the potential for a smaller pension pot in retirement. It’s important to acknowledge these challenges because without research and data reflecting the true realities of pay and retirement planning, we won’t be able to address the gap meaningfully.

“We are encouraged to see this issue explicitly referenced as a focus for reform in the Pensions Commission, launched this week. Auto-enrolment in its current format has not gone far enough to help plug this gap, and we’re even seeing younger women struggling to build pension savings despite having time on their side for real growth potential. There are a lot of factors at play here, but this also comes back to the sheer importance of greater pension engagement in the UK. We need to help empower women to take control of their pension wealth at an earlier stage, but also to remind them it’s not too late to make a difference if you’ve spent time out of the workforce.”

Notes about calculation - This is an illustration and only gives an estimate. We based our calculations on a retiree who is aiming for annual retirement income of £23,000 in total who receives a full state pension of £11,900 (this would give an income replacement rate of 67% for someone on a full-time salary of £35,000). They therefore withdraw £11,000 pension income each year, which rises each year by 2% inflation. We have assumed 5% annual investment growth and not factored in a tax-free lump sum, which could further reduce their available pension income. The calculations use the interactive investor income drawdown calculator, which factors in fees and charges.

Notes to editors

Calculations were made using ii’s Pension Drawdown calculator – linked here

Pension Drawdown Calculator | SIPP Drawdown Calculator - ii and assumed 5% investment growth and no tax-free lump sum was taken.