Updated 21 April 2021
Too many women are still putting their futures in jeopardy by leaving their partners to handle the finances. As new research highlights their different financial planning needs, IFA Susan Hill encourages more women to take control of their lives. Article by Nick Green.
It often takes a catastrophe to deliver social progress. The First World War accelerated the process of recognising women’s right to vote, while the Second World War led to women attaining more career opportunities. And already there are signs that the Covid pandemic – by causing upheaval on a scale comparable to a war – may be offering another wake-up call on gender equality.
In this case, it’s in the area of financial independence. The pandemic has stirred up many long-standing issues that until now have been widely accepted. But leading figures in the advice industry are now calling for more to be done to help women gain better financial awareness and security.
Despite much progress in recent years, financial advice still tends to be a male-dominated industry. This can pose obstacles for the millions of women who need financial advice, as IFA Susan Hill has found.
‘When a client engages a financial adviser,’ Susan explains, ‘they should look for someone who has empathy, someone with shared experiences, someone they can share money worries with, without fear of ridicule or explanation, someone who understands their aspirations and vision.’ And though this isn’t to imply that a male IFA can’t provide those things – many do with great success – the woman in need of advice may see it differently. Susan wryly notes, ‘It’s often said that widows sack the financial adviser. This comes about because many women still have a tendency to leave financial management to their husbands, who naturally tend to engage a male financial adviser. But then women tend to survive their husbands, so a huge amount of money falls into their ownership quite late in their life. And they then have to make financial decisions they have little experience or knowledge of. But if there’s no real relationship with their husband’s financial adviser, there’s a lack of empathy. And it’s even worse in cases of divorce, where the financial adviser naturally sides with the person they have been working with – the husband. Women then have to start making life-changing financial decisions at an emotional time, when they may never have done it before.’
It's a sentiment echoed by Yvonne Braun, director of policy at the Association of British Insurers (ABI), who says that a profession where men ‘vastly outnumber’ women may find it harder to engage with female clients. Donna Bathgate, COO of the Equity Release Council (ERC), agrees: ‘There are many divergences between male and female financial experiences.’ And yet women’s need for advice is often greater than men’s: the ERC’s research has found that a quarter of women over 55 wouldn’t know where to seek additional retirement income, compared to only 15% of men. Meanwhile their research partner, financial services firm Key, revealed that a quarter of their equity release clients are single women, compared to 14% of single men.
‘Increasing the proportion of female financial advisers can help to provide more nuanced advice specifically aimed at helping women maximise their financial resources in later life,’ says Donna.
The pandemic has reminded everyone that better ‘financial gender equality’ can’t come too soon. Research by advisers Hargreaves Lansdown found that the proportion of people planning early retirement (i.e. between 50 and state pension age) had more than doubled from 4% to 10% since the outbreak, while among women the figure tripled from 4% to 12%. But at the same time, Covid has been forcing people to retire: according to the FCA nearly 60% of retirements between March and October 2020 were prompted by the pandemic. This is just one stark example of how circumstances can take major decisions out of people’s hands, and a reminder of the need to plan savings far in advance so that such events have a less damaging impact.
Meanwhile, according to 2020’s Great British Retirement Survey by Interactive Investor, two-thirds of women aged 60-65 already face tougher financial circumstances than they expected, due to the raising of the women’s state pension age. Four in 10 say they will need to work for longer than they planned to. And this comes on top of the existing pension inequality between men and women. Several different studies, including those by Unbiased and consultancy Barnett Waddingham, have found that women’s pension savings significantly lag behind men’s, being up to 45% smaller on average by retirement age. This is mainly due to career breaks taken when having children, and/or moving to part-time work while raising a family, but also due to missed promotion opportunities resulting from those decisions.
The People’s Pension Report 2021 noted among its findings a ‘regret’ from some female respondents that they had not taken into account the effect of such factors on their pension savings. The report says, ‘[They] had not thought through the future impact of working three or four-day weeks on their pension pots and on their financial well-being in retirement.’ Even though at the time they may have felt they had no choice but to work part-time, suitable advice taken early enough could have reduce the impact on their retirement savings.
The Great British Retirement Survey calls this ‘the financial motherhood penalty’, noting the unfair tradition that women are still more likely to be the ones who take career gaps to raising children, with a resulting long-term impact on their pensions. But it points out that the solution need not be a difficult or costly one. It exhorts women in their 20s to start paying just an extra £25 per month into their pension pot. On a salary of £20,000 with the minimum contributions of auto-enrolment, this simple measure could lead to an extra £28,000 in their pot at retirement, even at very modest 3% pot growth.
A mother agreeing to take the career breaks while the father earns the bigger income may be an arrangement that suits many parenting couples. However, it can trigger major problems if the couple don’t stay together into retirement.
The Great British Retirement Survey noted that most divorcees (three in five) didn’t even discuss pensions as part of their financial settlement. This is a shocking oversight that will favour the male partner in the vast majority of cases, and could mean the overall settlement is unfair. A key problem is that many couples still struggle to discuss financial matters between them. Nearly a fifth of survey respondents said they didn’t tell their partner the whole truth about their finances, and 8% have secret investments. Some admitted to having a ‘runaway fund’ in case they split up – but even preparations like these can’t make up for the typical pension shortfall that women face.
It might seem a gloomy outlook for women and their finances, but it needn’t be. All that has to happen is for women to recognise that their financial planning needs may be different from men’s, and that certain key decisions may need to happen at different times. The simplest way to achieve the right strategy is to take advice in good time – and Susan Hill believes that more women would do just this if advice were made more accessible to them.
‘It’s a real bugbear for me that much of the financial literature churned out by product providers is very much aimed at men,’ she explains. ‘It’s the language used, the graphics, even the colour schemes. And I’m irritated by the glossy pictures of the perfect family with grandma holding a child’s hand while the big strong grandpa checks the pension savings. It sends the subliminal message that the woman is subservient, and that needs to stop. Providers need to get real, recognise that not all families are traditional, and that not all older women are grandmas or even still married. And yes – we could certainly do with more female financial advisers!’
The earnings gap doesn’t really appear until women hit their 30s, so maximise your contributions in your 20s and let compound interest get to work on them. If it’s too late for that, remember that one extra percentage point of contributions can make a big difference at any time.
Have a healthy shared approach to managing your money – don't let either of you handle it all, because you both need an ongoing awareness of your financial position and a responsibility for handling it. Choose a financial adviser together and always see them as a couple (remote advice makes this more practical).
If you take a career break and/or cut back your hours to raise a family, ensure your partner is aware of this sacrifice. If possible, have your partner make contributions into your pension on your behalf, so that you’re not so dependent on their pension in later life. This is even more important if you don’t earn yourself at all. The same applies if the reverse is true - try to ensure that your partner doesn't suffer a pension shortfall in return for being there for the family.
Many problems arise from treating women’s financial journeys as identical to men’s. Note the key milestones that lie ahead and work backwards from them to develop a savings plan. For instance, as soon as your first child is born, you know the approximate dates they will start school, higher education, work etc, and also the periods during which you may be earning more or less.
Many financial tips directed at women inevitably make certain assumptions – one of those being that they will have children, and another being that they will be the one who takes the career break. But it doesn’t have to be that way. If you are more naturally inclined to follow the career route, then pass the other tips to your partner – or rip them up. Because financial advice is about following your goals, not a set path that someone else has designed for you.
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