For financial professionals only
Close your eyes and imagine it’s the year 2277.
What revelations do you see? Do humans still live on planet Earth? Can we fly, or teleport? Are we *still* in lockdown?
Do women have economic equality yet?
Possibly not, according to forecasts from the World Economic Forum1. Which is quite an eye-opener.
Mind the gap
Last Friday, 20th November 2020, was UK Equal Pay Day. This was the point in the year when women effectively stopped earning relative to their male counterparts because of the gender pay gap in this country.
With pension provision so intrinsically linked to earnings, it’s almost a foregone conclusion that there will be a gender pension gap. Women earn less, so have less going into a pension pot. And that’s before we look at behavioural factors which may lead women to allocate more of their savings to lower risk assets such as cash2.
In our societ y, half the participants earn less, save less, and save less effectively, and to make matters worse, that same half of the population happens to be the one with the higher life expectancy. So that smaller pot, which isn’t growing as much, also has to last longer.
As a woman it bothers me that this is the reality in the year 2020. But this isn’t a gender issue.
Why?
Because it isn’t just female taxes that fund the State’s support of women who find themselves in retirement without pension assets. It isn’t only daughters who find themselves without an inheritance because everything mum and dad had has been spent on later life provision.
The knock-on impact is universal.
Minimising the impact
Pay disparity is as global and pervasive as the pandemic. It’s not something an individual woman can change. It isn’t something that more information, or better advice, can fix.
But the pension disparity we see today is a different story.
Think of it as a simple formula;
Low Pay + Low Contributions + Low Risk + Long Life = Pensions Shortfall
Ignore, for now, what we can’t change; pay, and longevity. We can still start to close the gap by looking at contributions and risk.
Cultivating contributions
Most part-time workers are women, often due to childcare commitments. Many part-time workers fall below the auto-enrolment earnings threshold. So, a change in the decision making of returning mothers around hours worked could be the difference between matched contributions or none at all.
For those that are earning good money and take a career break, personal allowances can be carried forward for three years (subject to future earnings being sufficient to cover the tax benefit on the resultant contribution).
Or, contributions don’t have to be made by the pension beneficiary; partners could supplement SIPPs where it’s affordable, to put women in better stead as individuals in the years ahead. Importantly, even if she has no earnings at all, such a contribution would still qualify for some tax relief.
Financial advisers can assist in all these calculations, and find the most beneficial, affordable, or tax efficient route for each client. But far from seeking out financial advisers, 9 in 10 women approaching pension withdrawal age aren’t even aware they’re entitled to free pensions advice from the government.3
Re-evaluating Risk
Financial advisers can also help women reassess their concept of risk. I’m not talking about wiping one number off an RPQ and replacing it with another one. I’m talking about engaging with women to educate and inform them about how financial markets behave, what volatility feels like, what their time horizon really is, and how viable their income requirements will be if they go through their accumulation stage at risk grade 3, versus risk grade 6.
We know women tend to invest in a more risk averse way to men, but is this a biological aversion or just a byproduct of a lack in understanding? Studies have shown women are more inclined to make financial decisions based on their understanding of the risks involved, and that it’s transparency of other information such as charges, rather than the price itself, which drives their decision making4.
It stands to reason that women want to make the most of their money – but first, they want to understand how.
For more women in retirement, watch our dedicated Let’s Talk Retirement webinar with special guest Abika Martin.
References
[1] Weforum.org 2020 Closing the Gender Gap Accelerators – 2020 [online] Accessed at: https://www.weforum.org/projects/closing-the-gender-gap-accelerators [Accessed at 24 November 2020]
[2] Fidelity The Financial Power of Women report – 2020 [online] Accessed at: https://eumultisiteprod-live-b03cec4375574452b61bdc4e94e331e7-16cd684.s3-eu-west-1.amazonaws.com/filer_public/84/09/840974d4-30b2-4e00-8fcc-e38ba1d07e7a/fidelity-women-report.pdf [Accessed 24 November 2020]
[3] Adviserpointsofview.com 2020 Women more likely to miss out on entitlement to free guidance despite having most to gain – 2020 [online] Accessed at: https://www.adviserpointsofview.com/2020/11/women-more-likely-to-miss-out-on-entitlement-to-free-guidance-despite-having-most-to-gain/ [Accessed 24 November 2020]
[4] Uk.scalable.capital 2020 YouGov Research: More than Half of Women Haven’t Started Saving for Retirement – 2020 [online] Accessed at: https://uk.scalable.capital/press/Research-More-than-Half-of-Women-Havent-Started-Saving-for-Retirement [Accessed 24 November 2020]
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.