We may talk lots about girl power and shout loudly about International Women’s Day, but when it comes to our finances, the gender wealth gap is, it seems, alive and kicking. This was laid out in all-too-stark terms at the beginning of this year with headlines warning that women face needing to work for a huge 19 additional years to retire with the same pension as men.
This was according to worrying research carried out by the Pensions Policy Institute and provider, Now: Pensions. The problem is, the picture isn’t altogether straightforward. Danni Hewson, head of financial analysis and founding ambassador of Money Matters at AJ Bell, said: “Women do have money, they do save, and looking back over the past five years of data, I’m struck by the fact that women actually tend to be more likely to pay into ISAs (individual savings accounts) than men. But women tend to favour the cash version over its stocks-and-shares counterpart.”
Here we take a closer look.
So why don’t women invest?
Separate new research from Aviva found there are very varied reasons for more women not investing.
While ‘not having any surplus money’ came top, it is perhaps the other reasons cited which help shed more light on the situation.
Almost one in five women (18%) think the risk is too high, 10% say they find investing too complicated, and 9% worry they won’t be able to withdraw money if they need it urgently. Some (6%) say they don’t know where to start. These factors all highlight the need for targeted financial education and further empowerment for women.
Joanne Philips, managing director of direct wealth at Aviva, said: “In an era where financial independence is a key aspiration for many there is a need to address some of the challenges that many women face when it comes to investing.”
Why it makes sense to invest
As a woman you may argue that, with interest rates higher than they have been in 18 years, keeping money in cash is less of an issue than it has been in the past. But what you need to remember is that over time, stocks and shares historically outperform.
AJ Bell’s Danni Hewson added: “Looking back, the numbers are pretty stark; £10,000 held in the typical cash ISA for 10 years would have been worth £11,223 at the end of December 2023. The average global equity fund in a stocks and shares ISA would have turned that £10,000 into £24,184.” This, as she points out, is a choice which contributes to the wealth gap.
A few key investment tips
- Education – start by building a solid foundation in financial literacy. We have plenty of guides to help.
- Set and prioritise financial goals – having clear goals will guide your investment strategy and help you stay focused on what matters most.
- Emergency fund – before dipping a toe into investments, make sure you’ve got a rainy day fund to cover unforeseen expenses.
- Diversify – don’t put all your eggs in one basket. Consider spreading your savings and investments across a variety of different funds, assets and tax-efficient wrappers to reduce your risk and optimise long-term wealth creation.
- Assess your risk tolerance and invest accordingly .
- Don’t go it alone – connect with other investors. Building a network of like-minded people can provide valuable insights and help you learn from the experience of others. There are now a host of investment platforms and websites offering women the chance to connect with other women who want to improve their financial knowledge and understanding. (Right here at Compare & Invest there’s a wealth of resources to help you make more informed choices).
Seek advice on investing
Don’t forget that while investing has the potential to deliver some big returns, investments can go down as well as up. To help with your decision making, you might want to think about speaking to a financial adviser who can provide personalised advice based on your specific goals. To read more about choosing an adviser, head here.
Pension planning risks falling behind
At the same time, separate research from My Pension Expert reveals 60% of women have not done any pension planning aside from workplace auto-enrolment. This compares to 46% of men.
As mentioned above, women’s retirement health is already being impaired by their lower lifetime earnings. This makes it especially worrying that women are not being diligent with their pension planning. This trend of low engagement is yet another thing contributing to the gender wealth gap.
A few key pension tips
- Get engaged – get involved with your pension planning both in and out of the workplace.
- Keep track – keep tabs on whether you’re on track to reach retirement goals. Begin by checking your State Pension forecast (visit gov.uk/check-state-pension). Take time to go through the annual statements you receive from any workplace and personal pension providers.
- Check out online pension calculators – these tools can help you decide if your current pension payments will be enough to fund your retirement lifestyle.
- Plug the gaps – look for breaks in your National Insurance record and see if it makes sense for you to ‘plug’ them. Note that you typically need at least 10 years of NI contributions to receive any State pension at all, and at least 35 years to get the maximum amount (which currently stands at £10,600 a year).
- Take advantage of tax breaks – if you’re self-employed, find out about the tax breaks for savings into a pension. Moneyhelper is a good starting point.
Seek advice on pensions
Given that pensions can be complicated, don’t be afraid of seeking advice on this topic, too. You want to be sure you’re putting the right steps in place to be able to support a financially stable lifestyle in retirement.
Equally, if that feels out of reach, you might want to consider a lower-key alternative to full-blown advice.
A financial coach can help you reflect on your current situation, and offer guidance on what you could be doing better. Think of it as a kind of personal trainer for your finances.
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