While it’s estimated that by 2025 around 60% of UK wealth will be held by women, the Covid-19 pandemic has exacerbated basic inequalities for some. The challenge for women across the board is making the most of their financial resources – whether stretching a smaller amount to last longer or growing surplus wealth to best effect. We explore the specific needs across every stage of life so that you know your money is working for you.
A recent survey revealed that only 19% of women had a financial adviser, versus 29% of men. That’s more than four in every five women without the benefit of professional financial guidance, or with unmanaged pensions, savings and investments over the course of their lives.
While every woman’s life journey is different, there are several key moments that matter when the need for financial planning is more acute such as starting work and becoming financially independent for the first time, taking time out from work to bring up children or arranging childcare during working hours, working part time and getting involved in elder care, planning for or approaching retirement and later life to experiencing a relationship breakdown or widowhood. It can be hard to know where to start but an experienced financial planner can help you prioritise your needs.
If you discover you have money to spare, there are several key questions you might ask yourself:
Life and health insurance protection underpins most good financial planning and is essential to building your financial resilience – your ability to recover quickly from an unexpected financial shock. These types of insurance can ensure that, should you or your family need it, the right amount of money will reach the right hands at the right time. However, financial services provider Aegon reports that almost half of working women do not have any form of protection to replace their income in the event of their death or if they are unable to work through illness or accident. If you’re single, this could mean a severe drop in your standard of living when you can least afford it. If you’re in a couple or with a family, your loved ones could be without key support when they need it most.
Life insurance Research suggests that women tend to underestimate their financial value. Almost a quarter of women surveyed said that they had not taken out life insurance because they either don’t see it as a financial priority or they don’t think they need it. It can be tricky to work out how much life cover you would need for yourself and your family.
Arguably, life insurance is most important when you become a parent.
With life cover, enough money can be made available to those who would be responsible for bringing up your children without you. Raising a child is, after all, an expensive business. And, of course, the days of children leaving home and becoming financially independent at the age of 18 are long gone. Around 3.5 million single young adults in the UK are living with their parents, a trend that is only expected to increase due to the economic fall out of the Covid-19 pandemic.
As your circumstances and responsibilities change, you should review the amount of cover you have on a regular basis to ensure it is still at the appropriate level and that you are not under or over-insured.
While sickness absence at work is on the decline, women represent the majority of all cases. Women age over 50 are significantly more likely than men to suffer musculoskeletal problems including back pain, arthritis and osteoporosis, conditions that are normally covered by health insurance policies. There are other specific health concerns for women, from breast cancer to endometriosis, that some insurers will cover for treatments. Yet, research from LifeSearch found that only 6% of women have income protection. As with life insurance, the apparent cause for this discrepancy is women underestimating their contribution to the financial wellbeing of the household, whether as an earner who may or may not be supporting a partner and/or children, or as a stay at-home parent. The purpose of health insurance, such as income protection insurance is to provide some money if you fall seriously ill or have an accident, potentially affecting you for many years.
According to a report from Fidelity, 12% of married women plan to rely on their partner’s pension in retirement, while 17% of women have no pension of their own at all. It’s worth noting that 66% of the over 70s who live alone are women and that the average age of becoming a widow is 75 (compared to a life expectancy of 89). Having a pension in your own right is therefore essential to financial resilience in later life. It is your own personal safety net. Ideally, women should save as much as they can into a pension early on in their careers and, if possible, before they have children or other caring responsibilities that could take them out of the workforce.
While the gender pay gap still stands at 17%, the gender pension gap is over twice as large at 40.3%, representing a difference of £7,500 a year. There are obvious reasons – disrupted careers to take time out to care for children or later caring for elderly relatives or helping with grandchildren. Additionally, divorced women and those who have been single mothers at some point in their working life are at greater risk of low income in retirement than the population as a whole.
Part of the gender pension gap can be attributed to government rules regarding workplace pensions. If you contribute to your workplace pension scheme, your employer must add to it. To automatically join the scheme and be entitled to your employer’s contribution, you must earn more than £10,000 a year with that company. Over three quarters of employees falling below the £10,000 threshold are women, meaning that more women are disadvantaged by these rules than men.
While women’s self-employment increased by almost 150% between 1984 and 2018 and continues to grow, worryingly, over a third of self-employed women are saving nothing into a pension. The pension issue is compounded further by the even wider gender pay gap among freelancers – 43%, compared to the 17% pay gap between male and female employees. If you’re self-employed, you need to be thinking about setting aside funds for your retirement. Covid-19 has hit women freelancers particularly hard with 40% of women being paid late since the pandemic, compared to just 23% of men, with a knock-on effect for planning and maintaining contributions.
To be entitled to a full new State pension you need to have paid or been credited with 35 years’ worth of National Insurance contributions (NICs). However, relying on the State pension makes for an uncertain retirement. If you take time out of the workplace to raise a child and claim Child Benefit, you will be credited with NICs while your child is under the age of 12. However, if you have stopped claiming Child Benefit because you or your partner are subject to the High Income Child Benefit charge, you should be aware that you will no longer be automatically eligible for NIC credits. To maintain eligibility, you will need to fill in the Child Benefit claim form and state on the form that you do not want to receive the payment. If you take time out to care for older relatives, you might like to consider making voluntary Class 3 National Insurance contributions to ensure that you don’t end up with a gap in your NIC contribution history that will result in a reduction in the amount of State pension you qualify for.
The good news is that working women are increasingly aware of the gender pension gap. A recent survey showed that 44% of working-aged women with a workplace or private pension plan have taken action after hearing about the gender pensions gap, mostly by increasing their monthly contributions into their pensions. The rate is highest among 18–34-year-olds, at 19%.
If you’re employed, check your latest workplace pension scheme statement. If you’ve set up your own pension, you may be able to get a valuation online, over the phone or by post. Check what fund your contributions are invested in. If you didn’t choose a particular fund yourself, the pension provider will have placed you in a ‘default fund’. This may be too cautious for your needs and may not provide you with the investment growth you need. A financial planner can make sure that you’re invested in the right fund for you. If you’ve got a few different pension pots from current and previous employers, you might want to think about consolidating them to make it easier for you to see how much your funds are worth and to keep an eye on performance and charges. Again, a financial planner can help you do this.
When it comes to savings, cash is still king for many. The advice network Quilter found that 72% of women over the age of 40 hold cash, and that 36% of them hold 100% of their savings in cash. While an easily accessible rainy day fund is important, holding too much of your savings in cash means you are losing money in real terms because of the effect of inflation. Essentially, the money you have saved will buy less in a few years’ time than it does today. Investments such as shares, on the other hand, have the capacity to match and even beat inflation over the longer term, although this is not guaranteed and there is the chance that you can lose money. Yet just 10% of women have a stocks and shares ISA and only 7% hold other investments or unit trusts. The most common reason why people choose not to invest is a lack confidence. They hold off making financial decisions because they don’t believe they understand financial products well enough, or think investing is too complex. When investment decisions are made, the tendency for women in particular is to be cautious and to take less risk, leading to the disproportionate levels of cash holdings compared to investments.
Understanding investment risk is key. The younger you are, the more important it is to expose your money to an element of risk to ensure that your savings are not devalued by inflation and to boost your investment returns in the longer term. As you get older and need to use your investment income, a more cautious approach may be more appropriate.
It is likely your family will be a priority when it comes to saving and investing. You may want to set funds aside to pay for school or university fees or build up a nest egg for children on reaching adulthood. Junior ISAs are a good way to pass on positive saving and investment habits to growing children. Both cash and stocks and shares versions of the Junior ISA are available and there’s a maximum annual contribution of £9,000. Like a regular ISA, there’s no tax to pay on any interest or investment returns. However, the child takes control of the account at age 16, and at age 18 the funds are theirs to do as they wish. If you’d prefer to keep control over the funds, then it’s best to speak to a financial planner who can identify a more appropriate product for your needs.
As we’ve seen over the last year during the pandemic, markets are highly volatile. Making snap judgements on your investments based on short term headlines, however, is generally unwise. Regular reviews of your portfolio will help you maintain the right balance of funds to maximise your returns. Keeping the right mix of diversified investments is important, as is an understanding of how your feelings or circumstances may change over the years.
As the saying goes ‘life is what happens when you’re busy making other plans’. Ongoing financial planning can ensure that you’re in a good position to deal with major life changes before they even happen. While the events that we cover in this section may or may not happen to you, preparing yourself and others for these eventualities makes good financial sense and will improve your financial resilience.
Being in a long-term relationship should not mean giving up your financial independence. This means more than simply earning your own money and paying your own taxes. It’s about having a bank account in your own name, savings in your own name, a pension in your own name, and perhaps credit in your own name. Many couples of course have a joint account perhaps to pay the bills, and/or joint savings or investments. Ensure you have all the details required, including any usernames and passwords, to manage these accounts and access the funds should you need to. If you are reliant on your partner’s income, for example if you take time out of working to raise children, then you should talk to them about protecting that income in case they die or are unable to work through illness. This is especially important if you are unable to work yourself due to caring responsibilities or for health reasons of your own.
Not all long-term relationships last and research suggests that it is women’s finances that are particularly at risk in the event of a relationship breakdown. Their household income is likely to fall by a third in the year following divorce, almost twice as much as men. In addition, they are more likely to give up their pension rights as part of their divorce settlement, leaving them less financially resilient in later life. A financial planner can help you – and your partner in the event of an amicable break-up – by reviewing your financial circumstances and assessing your future needs with a view to splitting your assets in a way that is fair both now and later in life.
As we’ve seen, the majority of women are not benefiting from professional financial advice to manage their financial wellbeing. We can help you review your options with objective and expert guidance and keep you up to date with additional changes that may affect your financial plans. Our role is to:
If you are interested in discussing the above with one of our experienced financial planners, please get in touch here.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
