Pension savings – why do women have less?

When it comes to gender equality, although progress might be slow, it is constant. The fight for equal pay continues, but the gap is closing steadily. With this in mind, it might be surprising to hear just how much of a difference there is between men and women when it comes to their retirement wealth. According to a recent report, on average women have saved £61,000 less towards their retirement than men*.

To find out why there is such a difference and how women can make sure they get the retirement they want and deserve, we spoke to Emma Sterland, a Chartered Financial Planner based in our London office.

What are the greatest financial challenges facing women as they approach retirement?

One of the challenges facing both men and women as they reach their selected retirement age is an increased life expectancy. We’re seeing people live longer, yet generally, we still peg retirement to the ages of 60 and 65, so whatever money is saved in pensions and investments needs to last for a potentially long period of time.

The difficulty for women in particular is that their life expectancy is generally higher than men’s, so their money needs to last longer. Also, if they are hoping to retire by the age of 60, as many women traditionally did in the past, this adds even more years to their retirement that have to be funded. I often see people who don’t have an understanding of what arrangements they have in place or realistic expectations of what these might provide. It’s my job to make them fully aware of this and to help them come up with an achievable and affordable plan.

Why have men tended to save more towards their retirement than women?

The most obvious reason would be taking a career break. If a woman has taken a significant length of time out of her working career, whether it be to raise a family or care for a relative, there can be a gap in either their State or personal pension contributions. This could then set them out of line with a man who has continued to work throughout his adult life with no breaks.

Recently, I’ve seen a lot of women who have had a family and want to return to work looking for working arrangements that are more flexible. This has led to a number of them becoming self-employed, so having gone from a setup where their employer would have also contributed to their pension, they now have to make the contributions themselves. Being self-employed can allow them to put off making pension contributions, with many of them saying ‘I’ll do it next year’. Instead, they end up either putting this money back into the business or using it to cover expenditure within the family, and the contribution is delayed for another year. Before they know it, many years have passed and the pension gap between them and their employed male counterparts is bigger than ever.

What about women who have decided not to take a career break?

Despite not taking a break from work, I often see that for married, heterosexual couples, the male is usually the higher earner. While there is definite progress around bridging the gender pay gap, if he is a higher-rate taxpayer and she is not, he will receive a greater amount of tax relief on any pension contributions. Therefore, it might be the case that more of the couple’s overall wealth has been invested into the man’s pension because it is more tax-efficient to do so. This can then lead to his wife having a significantly lower pension value by comparison. This approach is common and sadly, I don’t think I have one married client where both the man and the woman have a pension pot of the same size.

In my opinion, another reason for the gap can be attributed to attitudes towards investment risk. While sweeping generalisations cannot be made, I have seen many female clients who are more conservative in their investment approach than men.

If you have a man and a woman investing the same amount of money on a monthly basis into different funds with different levels of risk associated with them, eventually the woman could end up with less than the man if she has invested in a more conservative fund. Therefore receiving good financial advice is essential. Your adviser should explain the relationship between risk and reward in detail and how if the money isn’t required for a significant period of time, riskier options could be considered.

What can women do to ensure they are better prepared financially for retirement?

Involvement from an early stage is key. Traditionally, it was typical that the man would take the lead on financial matters for both him and his wife and make any important decisions himself. While this is changing in younger age groups, I do still commonly see this amongst clients.

Very frequently, I see women approaching retirement who have previously never even attended a financial planning meeting. They have left these matters in the hands of their husband and they only get involved when they have to. It then becomes a massive task to bring them up to speed on years of financial history in a short space of time. Without the full picture, it can be difficult for them to fully comprehend their financial situation and adjust their expectations of how this will provide for them at retirement if required.

Would working with a financial planner help in this preparation?

Absolutely. Our financial planners will help you to understand your existing pension arrangements and look at how these fit with your objectives, such as what age you want to retire, what your plans are following retirement and what level of income you need to fund them. We use a process known as cashflow modelling in order to do this.

Once you have the figures showing what you have and what you need, we can build a plan around them. Even if there is a shortfall, you can make positive changes. It might mean saving more money if you can or even working for a few more years, but you will have realistic expectations about what the future could look like.

It’s vital to do research and take time when looking for a financial adviser and to choose someone you trust and connect with. The world of finance is still perceived as complicated and unapproachable and it can be difficult to find an adviser and firm that are deemed understanding and approachable. Because of this, many put off dealing with these companies and therefore, put off dealing with their finances.

Tilney can help you with your pension

We’re here to help you tackle retirement planning and make the most of your pensions. Why not book a no-obligation pension consultation to find out more about how we can help you? You can use our online form, email a call back or call us on 020 7189 2400.


Important information

This article does not constitute personal advice. If you are in any doubt as to the suitability of an investment please contact one of our advisers.

* The Women and Retirement Report 2017, published by Scottish Widows.

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