Women suffer from innate disadvan-tages compared with men for much of their careers when it comes to saving for retirement. They are less likely to be in full-time employment, have lower average earnings and are more likely to work for smaller organisations, which tend not to give high priority to pension provision. It is hardly surprising, then, that the sixth Scottish Widows Women and Pensions report finds that women still lag behind men in retirement provision.
There is, though, one group of women who are not currently disadvantaged through their employment and that is those under age 30. They are more likely than men of the same age to be in full-time employment and to work for an employer with at least 1,000 staff. But they still save substantially less than their male peers, putting aside an average of just £49 a month in non-pension savings compared with £111 for men. Their accumulated savings average £4,800 compared with £7,700 for men.
Young people with low savings are of little direct interest to advisers as clients but today’s struggling 20-something could become an affluent 40-something or a well-heeled 50-something, especially if they develop the savings habit. So it makes sense to understand the savings barriers for younger women. A key issue is investment risk. Women of all ages consistently view all investments, from cash Isas to shares, as more risky than men. For example, 42 per cent of women under 30 consider pensions as risky compared with 36 per cent of men.
A second issue is financial literacy. Younger women are more likely than men to admit to ignorance on investments. Half of those under 30 do not know whether an equity Isa is risky or not while two in five who have a pension do not know what type it is. Figures for men are much lower.
Then there is perceived affordability. Fifty-four per cent of young women without a pension claim that they have no spare money compared with 39 per cent of men. Often this is largely a question of priorities and where planning for the future comes relative to holidays, iPhones and shoes. Younger women may find it more difficult to assess these trade-offs than younger men.
A key finding of our reports is that a non-saving habit becomes engrained and so retirement preparation should start early, even if initial investments are modest. We believe that three steps could make a big difference.
The first step is the introduction of automatic enrolment, which will allow young women to start a pension without having to make an active decision. This may overcome a lack of finan-cial confidence or at least force them to consider the impor-tance of pension planning, even if some choose to opt out.
The second step is a substantial increase in the availability of financial education and guidance. There are many initiatives on this, which are often industry-funded – directly or indirectly. A more cohesive and readily accessible system would be beneficial, whether through CFEB or by another route.
Finally, there remains a need to simplify products and com-munications for those starting out on the savings ladder. Some things, like talking about retirement savings rather than pension planning, should be very straightforward while others may require legislative or regulatory changes.
The UK financial system has arguably failed generations of women and left many facing poverty in old age. With state pension issues largely res-olved, we need to ensure that those starting out on their careers now have the best possible chance of a secure financial future.
Ian Naismith is head of pensions market development at Scottish Widows