Pension savings – why do women have less?

The 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. Despite now being able to access many pensions from the age of 55 (rising to 57 by 2028) and the state pension age currently standing at 68, people still tend to peg retirement to the ages of 60 and 65. 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. There is a 6.2% that a 55-year-old woman of today will live to 100.** 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 retirement that have to be funded. Sadly, 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 for their retirement.

Why men tend to have saved more towards their retirement then women

The most obvious reason for this would be taking a career break. If a woman has taken a significant length of time out of her 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.

I see 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. Before they know it, many years have passed and the pension gap between them and their employed male counterparts is bigger than ever.

We’re also seeing that the Covid-19 pandemic is having an impact on how much women are saving towards their retirement. According to research by The Wealthiher Network, women in the UK are one and a half times more likely to have lost or resigned from their jobs than men over the course of the pandemic***. Those who are self-employed may have lost business during the pandemic, but even if they haven’t, if their overall family finances have been squeezed, I see women foregoing making pension contributions in order to ease the burden for their family.

There is still a gap amongst women with no career breaks or periods of unemployment

Men overall still earn more money than women. While there is definite progress around bridging the gender pay gap, in the case of some couples, if the man is a higher-rate taxpayer and the woman 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 partner having a significantly lower pension value by comparison. This approach is common.

Attitudes towards investment risk should also be taken into consideration here. While it’s a commonly held assumption that women are more risk averse than men, I don’t believe this to be true. On the whole, my female clients want to have more information and clarity before they make a decision. They are no more risk averse than my male clients – they just choose their investments differently. That’s why it’s important that if a woman’s pension savings are to match their male counterparts, they have all of the information that they need and work with a financial planner who will take the time to discuss investment risk and the implications over the long term.

How women can be more prepared for retirement

Involvement from an early age is key. The earlier you start, the more time your pension pot has to grow and because of compounding – the snowballing effect of your investment returns generating more returns – even small contributions early on can make a big difference over time. With a long time to go before retirement, you can also potentially afford to take on more investment risk, and this again can have a big impact on the amount of money you’ll have in retirement. That being said, it’s important to remember that all investments carry risk and you could still end up with less than you originally invested.

It’s also important to take an active interest in your pension, for example where your retirement savings are invested and how well these investments are performing. There are a lot of mediocre investments out there and I meet people all the time who have worked and saved hard but are still facing a pension shortfall because their money just isn’t working hard enough for them. Looking at the cost of your investments is also key to this. While some investments have lower charges than others, if that fund does not meet your objectives, it will actually cost you more in the long run than if you had paid the higher charges for a fund that does.

Working with a financial planner

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 planner 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 who are understanding and approachable. Because of this, many women 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 consultation to find out more about how we can help you? You can use our online form or call us on 020 7189 2400.

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* Solving women’s pension deficit to improve retirement outcomes for all, The Chartered Insurance Institute’s Insuring Women’s Futures’ task force, October 2018

** ONS, 2021

*** The Wealthiher Network, The changing faces of women’s wealth – the Wealthiher report, 2020

The value of an investment may go down as well as up, and you may get back less than you originally invested.

This article does not constitute personal advice. If you are in doubt as to the suitability of a particular course of action please contact a financial adviser.

Issued by Tilney Financial Planning Limited