In the next few years, women are projected to control a significant portion of the UK’s wealth. By 2025, it’s estimated that 60% of Britain’s wealth will be in female hands. However, despite this trend, women are less likely to seek professional financial advice than men. It’s important to recognize the unique challenges women face when it comes to wealth accumulation and long-term financial planning.
The Gender Pay Gap and Its Financial Impact
While strides have been made to close the gender pay gap, it remains a reality. In 2023, the average pay for full-time female employees was 7.7% lower than their male counterparts. This pay disparity means that, in many cases, women start their financial journey at a disadvantage, especially when it comes to saving for retirement. To close the gap, women may need to save more to reach the same financial goals, but with the power of compounding, early action can help overcome this obstacle.
The Gender Pension Gap
The gender pay gap directly impacts pension savings, with women on average contributing 33.5% less to their pensions than men by the time they reach retirement age. This disparity is further exacerbated by career breaks, especially for women who take time off for childcare. In the UK, full-time childcare costs can be significant, prompting many women to reduce their working hours or leave their jobs altogether to care for children. Over a decade or more, this can result in substantial gaps in pension savings.
However, there is a positive trend, as many women are actively working to close this gap. A recent survey showed that 64% of women are increasing their monthly pension contributions to catch up on savings. No matter your age or career trajectory, making intentional decisions today about pension contributions can help bridge this gap.
Closing the State Pension Gap
Women also face a disparity in state pensions, though this gap is narrowing. To qualify for a full state pension, you need 35 years of National Insurance contributions, and certain life events—like claiming child benefit—count toward this. If one partner stays home to raise children while the other earns above £60,000 and becomes ineligible for child benefit, continuing to claim the benefit can still count toward the state pension, providing valuable qualifying years.
Life Expectancy and Retirement Planning
Women generally have a longer life expectancy than men, living on average 3.5 years longer. This means women need to plan for a longer retirement period, ensuring their savings last. Cashflow modelling and financial scenario planning are effective tools for predicting how long your funds will last and preparing for different life outcomes, such as outliving a partner or vice versa.
Additionally, it’s crucial for women to have a solid understanding of the family finances, so they are prepared to manage them should something happen to their partner. Open communication and planning today will help ensure financial security and reduce stress during difficult times.
Investment Strategies and Risk
It is often said that women tend to be more risk-averse in their financial decisions compared to men. This might be because women typically have less financial cushion due to the pay gap, career breaks, and longer life expectancy. Women are also less likely to invest in high-risk assets like cryptocurrency but more likely to invest in safer options like property. Understanding how to balance risk and reward is crucial in meeting long-term financial goals.
Taking too little risk with investments could hinder the growth of wealth needed to meet future objectives. Therefore, women must assess their financial priorities and understand the appropriate level of risk required to meet those goals, while still making informed and comfortable investment choices.
Conclusion
The financial journey of women is shaped by several unique factors, including the gender pay gap, career breaks, and longer life expectancy. However, by understanding these challenges and taking proactive steps, women can bridge the gaps in their financial plans. With careful planning, timely actions, and professional advice, women can secure a stable and prosperous financial future.
