Mind the gap
Women are acknowledged in many studies as better personal finance managers than men, but many are still leaving their pension planning too late.
The gender divide over matters of money is one of life’s thornier subjects, but there is plenty of research to suggest that women have the upper hand over men when it comes to looking after their finances. Studies suggest that women are more conservative and take more care over the finer detail of their finances, and consequently make for better managers of money. These differences are also apparent when it comes to saving for retirement and old age. However, women still struggle to set aside enough money to fund their pension.
There may be underlying reasons why women are struggling to save for later life: more uncertain job prospects and careers due to the priorities of family, or the pay gap that means their wages are almost a quarter less than those of men. And there may be other reasons: almost half of women who told a Scottish Widows survey that they were not putting enough money aside said they could cut back on going out or on their clothes spending (and a similar proportion said they could reduce their food and grocery bills). By the time they retire, 41% of women have realised they have not prepared adequately compared with only 24% of men.
This gap for many women between their retirement savings and aspirations is even more apparent when viewed against the recent changes to pension rules. With the age at which people can start to take the State Pension changing, a generation of younger women will have to wait the better part of an additional decade before they can draw their State Pension. Women were until the start of the financial year in 2010 able to receive it at the age of 60; but a woman aged 45 now will instead have to wait until she is 67.
The government’s changes to the pension rules are, of course, a recognition of and response to demographic changes in the UK and the mounting strain that an ageing population places on public and personal finances. In Britain, as elsewhere across the Western world, the expense of looking after our needs in old age looks set to rise over the coming decades. Someone retiring now may expect to spend 40%1 of their adult life in retirement. Women, with an average life expectancy in the UK of 831 years compared with 791 years for men, should be able to look to retirement as a potentially long, enjoyable and fulfilling period of one’s life. However, the proviso will be that there is enough income to allow for a comfortable lifestyle.
A recent survey by fund manager BlackRock, however, showed that many women in the UK do not engage with their financial future until they have reached their 50s. Worryingly, younger British women, aged between 25 and 34 years old, are misjudging by more than £400,000 the pot they will need to fund their income aspirations. The survey of more than 1,000 British women found that those in their mid-20s to mid-30s expected a household income of £29,000 a year in retirement, and assumed that they would need a pot of £142,000 to fund this financial goal. In fact, they would need a lump sum of £555,556 to achieve this annual income.
British women acknowledge the limited role that the state is likely to play in the future in the funding of our later life, according to BlackRock. However, despite this realism, a worrying 64% have not started to plan financially for their future. Saving and investing for retirement emerged as sixth on the list of financial priorities for younger women, behind paying off debts, growing their wealth, saving towards a new home, paying off a mortgage and financing their children’s education. A scant 13% described themselves as “actively investing”.
Perhaps it is part of our human condition to be oblivious to, or feel above, the inevitable march of time and the need to make provision for these years. Instead, some will lean on partners to cater for old age. But our status – whether single, separated, divorced or widowed – is immaterial when it comes to the need to secure adequate income in later life. Marriage or a long-term relationship is no guarantee of a future pension. Life can fling a range of upheavals and challenges at any of us at any time – from divorce and separation to redundancy, illness and death. A pension for both partners in a relationship will always be preferable to one.
Age and hindsight, of course, can bring wisdom. When the BlackRock survey asked the retired women what advice they would offer to the younger ones in preparing for retirement, more than two-thirds said they would recommend starting to save as early as possible – which would be well before the mid-40s when most women start to prioritise their retirement needs.
But perhaps there is hope for the future. The survey found that younger women are more likely than those of any other age group to seek the help of a financial planner; and more than half of all women who use an adviser feel in control of their financial future and confident they have made the right decisions.
1 Source: Taxbriefs, September 2014.