Mind the Pay Gap
Men tend to be better off in retirement than women. It’s no secret.
A 25-year-old woman will need to save an average of £185,000 more during their working life to enjoy the same retirement income as a man, which means investing an extra £210 into a pension each month until retirement.[1]
Can you imagine working for decades, saving what you think you can spare and yet not having enough for a comfortable retirement?
Retirement poverty is a genuine issue for many women. My role as a financial planner is to help you bridge the gap. Here’s what you need to know:
Women earn less than men
There are more men than women in senior roles. In the top 250 listed companies in the UK, 34.9% of directors were women.[2]
Women are paid less than men for the same function. The Office of National Statistics reports that the gender pay gap increased to 15.4% in 2021, from 14.9% in 2020.[3]
Pension contributions tend to be a percentage of earned income
If a woman makes less than her male counterpart, she’ll be saving a smaller sum each month for her retirement.
A recent report commissioned by Prospect found a 40.3% gap in pension savings between women and men – that’s an average difference in pension income of around £7,500 a year.
A more extensive study of 4 million members of the Legal and General pension scheme found that the typical gender pension gap is 17% at the beginning of women’s careers and increases to 56% at retirement compared with men. On average, women can expect to retire with less than half the income of their male counterparts.
Career breaks and part-time working
Add in maternity leave, career breaks and part-time work to fit around childcare or look after parents, and the pay gap and pension gap both widen.
Your state pension is unlikely to be enough
Until 2016, the State Pension was made up of two parts; one based on National Insurance contributions history and the other related to earnings. If you’ve not yet reached retirement age, your State Pension will be a flat rate based on your National Insurance contributions. The good news is that the gender retirement gap relating to State Pension is closing.
You’ll need at least ten years of sufficient National Insurance payments on file to get any State Pension under the current system.
The full State Pension is £179.60 a week in the 2021/22 tax year, which gives an annual income of £9,339.20. That’s less than an 18-year-old working full time on the minimum wage.
Do you know what your State Pension will be? You can check your forecast online.
What are your options?
Financial independence and control are important goals for all women. Saving regularly, contributing to a pension and prioritising later life planning are sensible strategies.
It’s essential to take full advantage of your workplace pension or occupational pension scheme and maximise your contributions. The more you can save for the future, and the earlier you start saving, the more income you will have in retirement.
Rather than simply saving for the future, women need to invest
Women are less likely than men to invest, and fewer women use interactive investment tools.[4]
What’s holding you back?
- You’re wary of risk.
Many women stick with what they feel is the safety of cash savings, worried that they don’t have the knowledge or experience to invest.
With interest rates on cash so low, it’s only by taking sensible risks and exposing your savings to the potential of stock market growth that your pension fund can provide the income you want and need when you retire.
- You don’t feel comfortable talking about money.
If you’ve left the financial decision making to your partner in the past, you may feel you don’t have the knowledge or experience to step into a more active role.
Investment and pension advice is not related to gender, but it’s essential to find an adviser whose advice you trust and who understands you. You may feel more relaxed talking with a female financial expert.
- You worry you won’t understand the jargon.
It’s true to say that financial products can be bewildering, but a good financial planner should be able to explain your options to you in everyday language. Choose an adviser with the knowledge, expertise, and skill you can trust.
Bridging the Gap
Financial advice is a male-dominated profession. In 2019 only 17% of regulated financial professionals were women, so I’m not a typical Chartered Financial Planner.
With greater life expectancy, women need longer-term financial security. Bridging the pension gap is essential for a carefree retirement. Investing may feel like taking a giant leap of faith, so you’ll need expertise and support.
I’m passionate about helping women boost their financial confidence. Let’s chat, I’d love to help.
Why not book a FREE Discovery Call with me HERE.
For more tips on facing your financial fears and much more follow me on my socials.
Sources:
[1] Scottish Widows Women & Retirement Report published in 2021
[2] Commons Library Research Briefing, 4 March 2022.
[3] Gender pay gap in the UK: 2021 (ONS)
[4] Interactive Investor and Wealth Simple
