Wednesday 8th March marked International Women’s Day. It is an important opportunity to recognise the social, economic, cultural, and political achievements of women across the world. Yet financial planning for women is often left out of these discussions. In the UK, women still face unique challenges such as career breaks (e.g. to care for children), lower earnings due to factors such as a higher likelihood to engage in part-time work, longer life expectancy and more. In this guide, our Tees Valley financial planners at Vesta Wealth offer some thoughts on how women can plan their wealth carefully in 2023 and beyond.
Why do UK women face unique financial planning challenges?
From October to December 2022, 15.66 million women aged 16 or over were employed in work. 5.92 million of this figure were working part-time; this represents 38% of employed women, but for employed men, the percentage was 14%. Whilst women should not be ashamed of working part-time, it is important to recognise the impact this has on career earnings – and, in turn, their pension contributions. In 2022-23, your employer is required to contribute at least 3% of your salary to your workplace pension (the amount is 5% for employees, totalling 8%). Naturally, a lower salary means less money going into your pension pot. This can lead to lower retirement savings when nearing the end of their careers.
UK women are also nearly three times more likely to take career breaks to care for loved ones compared to men. This might be due to cultural forces (e.g. women and men believing that the former is responsible for the home), structural influences – such as better UK maternity provision compared to paternity – and personal choice. Again, this can lower a woman’s overall career earnings and, in turn, her retirement savings.
This can also have a knock-on effect on the State Pension. As the new State Pension is calculated on the number of qualifying years of national insurance payments you have built up, women taking a break from work might also lose out on these valuable benefits. There are, however, mechanisms whereby women looking after children, or caring for relatives, can continue to claim qualifying years and build entitlement to the state pension.
A third factor to consider is the longer life expectancy for women. In the UK, men live an average of 79 years whilst women live nearly 84 years. This means that, on average, women may need to save for an additional 5 years of retirement compared to men. Finally, many divorced women face an “unstable retirement” due to pensions getting left out of settlements. A pension can be the second-most valuable asset after the family home, yet only 15% of divorcing couples include pensions in the final settlement.
How UK women can build a financial plan
It is never too late for women to examine their financial plans, address challenges, and progress towards their goals. A good starting point is to ask yourself some (potentially uncomfortable) “what if?” questions. If you are in your 20s or 30s, for instance, what if you have a child and decide to take a career break? How long might this break last and how easy would it be to get back into the workforce later? What would happen to your pension savings during your child’s early years? How would your household finances be affected by relying on a partner’s income and/or childcare costs, such as day nursery or childminders?
Older women may be focused on other questions like “What happens if I get divorced?” Or, if my spouse/partner gets seriously ill, injured or dies, how would our household cope? These are all complex questions which are difficult to plan for. So it can help to consult a financial adviser to discuss your options. For most women, it helps to look at your monthly budget and the state of your short-term savings. This can help you identify areas where needless expenses could be reduced and can highlight shortfalls in your “emergency buffer” account. The latter can help to protect your finances if, say, a large unexpected cost arrives such as a major home repair.
Another wise step is to check your wider protection plan. If you are a homeowner, for instance, do you have life insurance ready to pay off the outstanding mortgage if you (or your partner) die(s)? Do you have family income benefit in place? What about income protection and critical illness cover? Do you or your partner have any “death-in-service” benefits available from your employer? Again, consider speaking to a financial adviser about which of these options may be best suited to your situation and needs.
From here, look into the more distant future. Where do you want to be when you are older and perhaps looking to retire? Are you planning on relying on your spouse’s pension or do you have savings and investments of your own? How can you protect your long-term financial goals if, say, your spouse dies prematurely or you separate/divorce? One study reveals that 12% of married women plan to rely on their husband’s pensions when they retire. 17% of women have no pension of their own, at all. At the very least, women should understand the household finances and assets (including pensions) and have a stake in their long-term future. If you plan on being dependent on someone else in retirement, make sure you are protected should your relationship ever break down (however likely or unlikely this might seem).
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.