I’m in the unusual position of being in a long term partnership with a lady who earns more than me and knows a lot more about pensions than I do.
I wish it wasn’t so unusual but the sad fact is that there is a wide pensioner pay gap , just as there is a gap in earned income between men and women. For most households, women are likely to have the weaker finances.
By the time a woman is aged 65 to 69, her average pension wealth is £35,700, roughly a fifth of that of a man her age, according to a study at the end of 2018 conducted by the Chartered Institute of Insurance (CII).
Emma Maslin is a money coach asks an important questions on her blog
After having children, I had a career break. When I returned to work, for childcare reasons, I took a different role with a significantly lower salary. Then I worked part-time, with an even lower salary.
Finding myself in an unsatisfying role for which I was overqualified, I started my own business. This gave me back a sense of purpose, but took away access to an employer pension scheme with its top-up contributions.
The motherhood penalty, the flexible working sacrifice and the pitfalls of opting for a self-employed life — my pension pot has been hit by them all. How about yours, or those of the women in your life?
What worries me is that many women I know are financially ill-prepared for retirement and feel guilty that they have let themselves or – worse – their families down.
They pay the motherhood penalty twice- firstly by losing out on personal security and secondly by societal pressure which suggests they have been financially feckless.
The situation women find themselves with regards saving are mirrored by state pension entitlements. Reforms to state pension entitlement should over the long term largely remove the state pension as a source of future inequality but in the short-term, as the WASPI women point out, women’s finances will get worse before they get better.
So what can women do for themselves?
Women do not earn considerably less than men until they reach Mum’s age
It’s clear from this chart that women are in the strongest position to save for themselves when they are young and that as they move into their forties, both their earnings and spending power decreases dramatically.
And – due to the power of compounding interest an average earner in a good-quality defined contribution pension scheme could miss out on £100,000 in employer contributions and tax relief by leaving pension saving until they’re 40 (source Barnett Waddingham actuaries).
Put simply , the savings women make when they are younger are the ones that count most when they retire.
Many younger women I talk with are both ready to save and happy to save for their futures but lack motivation to do so as they prefer investments which they can control and have obvious positive social impact.
Historically, the assumption has been that an investment for social good won’t perform as well as one that invests with little regards to Environmental, Social and Governance considerations.
This assumption is being smashed by recent reality. The market no longer favours “sinful stocks” and is increasingly investing in the equity and debt of organisations with a low carbon footprint, strong social purpose and responsible governance.
What is more, it is now possible to invest in funds which are specifically targeting investments that score strongly on ESG. Technology is increasingly allowing women to see through the fund wrapper and look at the underlying investments in the funds they invest in.
The weight of money flowing towards these funds is creating momentum in their favour and many of these transparently run ESG funds are out-performing more traditionally invested counter parts.
These funds are now readily available in most workplace pensions that women can invest into. We expect shortly to see them as the “standard” fund into which you are invested if you do not make a choice.
These standard funds (often known-unfortunately- as “default” funds) are expected to be selected to meet the needs of investors and increasingly research is suggesting that investors, especially younger women are demanding their money is invested responsibly.
So what am I , a 58 year old man, telling my young female friends?
Firstly, all women, but especially younger women , should stay in the workplace pension schemes into which you are enrolled
Secondly, if you are like Emma Maslin you start your own business or choose to be self-employed, you may find yourself without a workplace pension. If this is the case you should consider setting up a pension with the Government pension scheme called NEST. This is an option for all businesses and the self-employed.
Thirdly , you should consider making extra contributions into your pension scheme. If you are in a relationship you should discuss with your partner, the importance for you of building up financial security and insist on your right to do so. For too long, young women have been told they will be looked after- too often they aren’t.
Finally, if you are one of the young women I have been meeting, then you should be investigating the ESG friendly investment options offered by your workplace pension.
Fortunately, the senior positions in reward, human resources and (for the larger employers) pension departments are likely to be on your side. “Engagement” is the buzzword and asking those who run your workplace pensions for information should be met with happy smiles!
If you cannot get help from your employer, you should get help from the helpdesk of the workplace pension provider your employer has contracted with . For those without a workplace pension, large schemes like NEST are well resourced to answer your questions,
As a final point, it’s worth thinking about the pension package when you change jobs. The current minimum pension contributions from employers under auto-enrolment are none too generous. Make sure that if you are negotiating your pay , that you include pensions in your package.
Look out for yourselves – you cannot rely on anyone else to do that for you.