Women are poorer than men. Their finances get hit again and again throughout their lives, meaning they end up with lower savings, smaller pension pots and invest less. This has created a huge £1.65trillion gender wealth gap across the UK.
According to investment firm AJ Bell, when you look at total assets including cash savings, pensions, investments and other assets (excluding property), the average woman has £49,000. That might not sound too bad, until you compare it to an average £114,000 for a man.
It starts pretty early in life, at age 18, when they head off to university and take on a pile of debt to fund that. A third of women think they will never be able to afford to pay off that debt, compared to just one in five men. That may well come true as women earn less, take more career breaks, or work part-time, due to taking on the lion’s share of caring responsibilities. A lifetime of lower earnings takes its toll, impacting a woman’s ability to build up wealth and leaves many either spending their retirement struggling or reliant on a partner.
Women do not get off to a great start. They are less demanding and tend to accept the first pay offer, rather than negotiating, say AJ Bell. They prioritise benefits such as additional holiday, hybrid working and parental leave, while men focus on share schemes and higher pensions contributions.
The pay gap between men and women is 13.1% for all workers, and 7% for full-time workers, the Office for National Statistics says. Once they start on lower incomes, women face further financial hits with dips in earnings from career breaks, whether that is bringing up children and/or looking after ageing parents.
AJ Bell found almost half of women did not return to full-time work after their first child, compared to less than one in 10 men. Meanwhile, almost half have had their career and/or finances impacted by caring responsibilities outside of parenting. One in eight gave up work, almost one in five cut their hours and others took on lower-paid jobs.
And, of course, there is the menopause effect. One in 20 women stopped working because of it, one in 25 reduced their hours and others had to use up holiday or take unpaid leave.
With dents in earning power, women struggle to save regularly. Even when they do, it is much less as figures from femaleinvest.com show women save £180 a month, while men put away £306. That’s up to £1,512 a year more. With interest of just 1%, almost £16,000 extra after 10 years, £33,000 more over 20 years.
Then there is the investment hit. There is no real gender gap until the age of 18, according to investment firm Hargreaves Lansdown. It says girls and boys hold a similar percentage of Junior ISAs and have roughly the same amount. The ISA gender gap starts at age 19, by a few percentage points, but widens quickly from age 20. By age 25 to 29, men make up 64% of ISA holders at the firm. Recent HMRC data showed that although women make up 52% of ISA holders, around half a million more men have stocks and shares ISAs than women.
Sarah Coles, head of Hargreaves Lansdown, says: “This is partly due to the cultural biases that teaches girls to be good and not make mistakes. While boys are more likely to be brought up with an acceptance they will take some risks and make mistakes. We have also built investment into a subject that knowledgeable people talk to one another about in a different language – making millions feel it’s a specialist interest that doesn’t appeal to them. Not investing makes a major difference to future financial resilience, and seriously hampers any chance to close the wealth gap.”
The gender wealth issue hit its peak with pension savings, which makes up the biggest chunk of the disparity. The latest Woman and Retirement Report from Scottish Widows reveals it will take 20 years to close the pensions gender gap. The firm has tracked women’s retirement savings for two decades, and despite progress the current average gap between men and women is a hefty £100,000. The average woman is on track to receive £12,000 a year, after paying income tax and housing costs, against £17,000 for a man. The Pensions and Lifetime Savings Association’s minimum retirement standards are £14,400 for a single person and £22,400 for a couple.
Andrew Tully, of retirement-focused adviser platform Nucleus, says: “A greater number of women could see their retirement prospects improve if the family unit considers third-party contributions. Often caring roles have fallen to women and this has impacted earning power. If women were to receive pension contributions from a partner, it could go some way to reduce the gender gap.”
A woman saving £200 per month from age 25 to 65, with 5% investment growth, would build up £320,000. Taking a five-year break from saving to bring up a child (between ages 30 to 35) would mean £65,000 less.
A partner could help by continuing pension savings during the break.
WAYS TO BOOST PENSION SAVINGS
Start early as every pound saved in your 20s has four times the buying power of those in your 50s.
If you are auto-enrolled into a workplace pension, do not opt out. Check if your boss will pay in more than the legal 3% minimum, some will if you up your contributions. If you earn below £10,000 you will not be automatically enrolled, but have the right to a workplace pension. If you earn between £6,240 and £10,000 you can opt in and qualify for minimum employer contributions. If you are on less than £6,240, your employer has to give access to a pension but does not have to make any contributions.
GET INTO THE SAVINGS HABIT
It is tough to find cash to save as the cost of living keeps rising but you do not need large amounts.
Set goals: you’re more likely to get started and keep going if you have an aim. Nothing to save for means you are likely to save nothing. Start small: with say £10 a month, and gradually build it up. Check balances: it gets addictive watching savings grow and helps you stay on track.
INVESTING FOR BEGINNERS
“There’s a saying that it’s not about timing the market, it’s about time in the market, so opening an account and adding a small amount is a great first step,” says Laura Suter, director of personal finance at AJ Bell. “Another misconception is you need to be rich to invest, when there are platforms and apps where you can start from £25 a month. Just be cautious of high fees, they will eat into your hard-earned gains.”
She continues: “There is lots of jargon in the industry, but many firms break it down and explain investing simply and plenty of funds show the risk level and are simplified for beginners.” That’s good to know.
FAMILIES AND FINANCES
Couples can each get a better longer-term financial outlook says Sarah Coles, head of personal finance at Hargreaves Lansdown. Plan together, so one does not end up with all of the childcare costs, while the other has every pound of savings.
A working partner can pay up to £2,880 annually into the non-earner’s pension (£3,600 with tax relief). It is not always best for the higher earner to make the bulk of pension contributions. They get more tax relief on contributions but risk higher tax on withdrawals.
And ensure child benefit is paid into the non-earner’s account, so they will receive National Insurance credit towards their state pension.
