How salary exchange can improve women’s retirement outcomes

Over the past 20 years, the UK has made great strides towards reducing the gender pension gap. 

However, the most recent data from Scottish Widows’ Women and Retirement Report has revealed that, despite this strong progress, it could take another 20 years to close the gap.  

Reducing the disparity in retirement outcomes between genders will require significant and sustained government intervention. There are, however, several simple changes employers can take today which could immediately help boost their employee’s retirement outcomes.  

Salary exchange schemes, wherein employees exchange part of their salary in return for an employer pension contribution, are a quick, easy and effective way for employers to maximise their employee’s retirement prospects. While these schemes aren’t new, millions of future retirees are still missing out. 

How salary exchange can work

Salary exchange can directly address some of the core drivers of the gender pension gap – namely that, on average, female savers’ lifetime earnings are lower and career breaks are more common, which means their contributions are smaller. This ultimately leads to weaker retirement outcomes. 

As detailed in the 2024 Women and Retirement Report, the risk of facing poverty in retirement is 7% higher for women.  

Salary exchange is a valuable way to maximise the potential value of women’s disproportionately lower incomes.  

By reducing their gross salary – thereby paying less in tax and national insurance contributions – employees can benefit from one of two outcomes. Either a potential increase in take-home pay without reducing pension contributions, or an increase in pension contributions without reducing take-home pay.  

Increases to take-home pay provide savers with an immediate benefit: increased disposable income. This is particularly important for women, who are more likely to work part-time and earn less than their male counterparts. 

Salary exchange can also help increase pension savings by redirecting what would have been national insurance contributions directly into savers’ pension pots. The compounding of these additional contributions is another useful step towards helping women increase their financial resilience.  

Employer benefits 

By reducing their employee’s gross salary, employers also benefit. This reduction in their employee-related national insurance costs enables them to offset the increase that followed the 2024 Budget.  

There are several potential boosts to take-home pay and pension contributions that savers leveraging salary exchange can receive. 

For example, the saver can benefit from the contribution of an additional £194 to their pension, or a £140 increase in their take-home pay. That’s enough to pay the UK’s average water, broadband and home insurance bills.  

Salary exchange’s adaptability shouldn’t be overlooked either. It provides women returning to work after maternity leave, or other caregiving responsibilities, the flexibility to increase their monthly contributions and offset gaps in their savings, without impacting their take-home pay. 

This makes it a vital tool for navigating life’s financial challenges and helping ensure they can remain on track for their projected retirement outcomes. 

While structural challenges may take another 20 years to overcome, salary exchange offers women an immediate, accessible solution to improve their long-term financial security. 

By increasing take-home pay, boosting pension contributions, and enabling greater financial flexibility, salary exchange empowers women to maximise their retirement outcomes. 

Susan Hope is a workplace savings specialist at Scottish Widows.