Factors such as longevity and career breaks can negatively affect a woman’s long-term financial situation
International Women’s Day, celebrated on 8 March, ran with a theme of “balance for better”. This highlights balance in every sense – and finances need to be one of them. While financial planning is not an inherently gender-specific process, there are some planning points likely to impact women disproportionately compared with men.
Firstly, women are more likely to live longer than men but are also more likely to live for longer in poor health. The average woman now lives for approximately 19 years in poor health, increasing the time they are reliant on their pension.
Despite this, women can find they have smaller pension pots than men and may also save less into them.
Research shows that men are, on average, saving almost double what women are each month towards their retirement (£301 versus £171 respectively).
“Start early when it comes to saving” is an adage spouted by many and its importance should not be underestimated. But, for some, it is even more important, including women and anyone who might take a career break.
Our analysis shows that women who take a two-year career break early on in their saving career can end up with 7 per cent less in their pension pot. It is even worse if they do not save into their pension until after a career break, ending up with around 11 per cent less than men who started later in life.
Women should also ensure they do not suffer with a reduced state pension when taking career breaks, as they are subsequently at a higher risk of failing to collect National Insurance credits, which will impact the overall size of the state pension. If someone is not working and looking after a young family, they will not automatically accrue NI credits, creating a gap in their records.
The way to combat this is by making sure they claim for child benefit even if they do not want to receive child benefit payments, as it ensures they gain NI credits.
Another potential ramification of taking a career break is that it can leave a family under-protected.
Due to women traditionally being more likely to take on the responsibility of the main carer for young children and deciding to leave the workplace, they also leave behind any employee benefits, such as protection.
Typically, people may think about the main earner in a family, regardless of gender, as having the greatest need for protection.
However, the consequences of the primary carer falling ill or passing away can also be disastrous.
If this does happen and they are not covered by a form of protection, it can have a negative impact on the family’s earning potential, as the primary earner will need to reduce their working hours or pay for additional childcare.
As families become increasingly complex, it can prove harder to make sure wealth is passed down to the intended beneficiaries.
For example, if a married woman has an inheritance, which she then specifically earmarks for her children’s education, it is worth thinking about putting the money in trust.
Doing so shields it from potential misuse as, if she died without leaving a will, the money would pass over to her husband who could then decide to spend it differently. Similarly, trusts can help protect the wealth in the event of a divorce.
It is important for any woman to make sure they have their own financial plan in place, regardless of their financial circumstances or relationship status. Advisers can play a key role in this.
According to our research, 32 per cent of women who had seen an adviser believed they had benefited a lot from the experience, compared with 25 per cent of men who thought the same.
Overall, 79 per cent of women who had seen an adviser believed they had benefited in some way from the experience.
Rachael Griffin is tax and financial planning expert at Quilter