Why women are still missing out

A few articles came out last month about the size of the gender pension gap including one from the Pension Policy Institute. This stated that women typically need to work for an extra 19 years to retire with the same pension savings as men.  It’s a shocking statistic and got us all chatting in the office about why this was the case and what can be done about it.

There are plenty of hard facts showing that women have worse pensions than men.  In 2020, CII research shows that the average pension pot of a women was just 1/5^th that of a man’s. In summer 2023, the Department for Work and Pensions published the first official measure of the gender pensions gap, which showed women reach age 55 with a third less saved into private pensions than men. Practically, AJ Bell confirmed that on their platform the average pension pot for a women is £32,000 compared to £49,000 for a man.

But it also extends beyond pensions to other areas of investing.  Stocks and Shares ISAs are more likely to be held by men while Cash ISAs are more likely to be held by women.  This is particularly the case at earlier ages – between 25 and 34, 65% of contributions into Stocks and Shares ISAs were from men with only 35% for women.

As we all know, the compounding effect from investing and ‘time in the market’ is huge so these differences in investing rates at younger ages can have a massive impact on future outcomes. 

Clearly some of the current situation around pensions relates to historical policy with more recent additions such as shared parental leave, auto enrolment into pensions and flexible working helping to close the gap over the long term.  But that is going to take a long time!

Picking out some underlying themes, there would appear to be three key factors at play:

• Work choices  – women are choosing careers that tend to have lower pay, are more likely to have career breaks for caring responsibilities or to work part-time.  While there may be equal pay for equal work, pensions contributions are often based on career earnings and therefore significantly impacted by these career choices. 
• Saving choices – women are less likely to contribute additional money to a pension than men According to a survey by Standard Life, men are more likely to opt to put surplus cash into their pension (26 per cent) compared with women (17 per cent). 
• Investing choices – and as we have seen women are less likely to actually invest or think that investing is for them.  Ask a roomful of women to describe an investor and they will tell you it’s a man in a suit.

Work choices are clearly very personal, but even just focusing on savings and investing choices can really start to make a difference.

On pension contributions, encouraging women (well everyone really!) to contribute more early on in a career and letting compounding do the work.  Ensuring you continue to contribute and get tax relief during career breaks.  Making contributions for non-working spouses.

On investments, ensuring that you are taking enough risk.  Many pension default schemes may be invested only 60% in equities. Younger pension investors can afford to weather the ups and downs of stock markets and benefit from being more fully invested over several decades.  

And some of this is just making our mothers, daughters, sisters and friends realise that advice and investing is for them. Why else would men be more likely to invest in Stocks & Shares ISAs than just a lack of awareness and consideration among women?  Talking to friends and family members to raise awareness is a good starting point.

We’re delighted that we have so many female clients and now three female Advisers at Cavendish Ware and a female Chair of our Board.  We can’t change everything but we can play out part in closing some of the gender gap.

5^th April – all change on the tax front

After much trialling the Chancellor has announced a few significant changes in the budget which will impact planning for some clients.  For those who have listened to our latest podcast, these steal some of the policies that Labour had headlined – most notably the changes to the non-dom tax regime but also include changes to CGT on property and the introduction of the British ISA.

And notwithstanding these announcements, there are a few other changes which take effect from 5^th April this year as a result of last year’s announcements.  Firstly the Capital Gains Tax allowances reduces again to £3,000.  And secondly, the removal of the Lifetime Allowance calculation on pensions becomes embedded in the legislation.