We all know longer life expectancies are having a big impact on how much we need to save for retirement. But, although this is an issue for everyone, women are affected most – in the UK 70 per cent of people over 90 are female.
Although the gender pay gap is slowly closing, the ONS reports there is still an 8.9 per cent earnings gap between men and women doing the same or similar full-time roles in the UK. This doesn’t just impact on women’s earnings throughout their working life but, because pension savings are often based on a percentage of earnings with employees and employers each contributing, lower lifetime earnings also have a direct impact on pension savings and retirement income. It is estimated that by their 60s women will have around £51,100 in personal pension savings, compared to men’s £156,500.
Working pattern disruptions affect women disproportionately. Although both sexes can take parental leave, maternity leave is still most common. The same considerations apply during any period of part-time working, including later in life when women potentially face caring responsibilities for older family members. While employers are aware of this and HR teams often spend considerable time formulating family-friendly policies and creative flexible working arrangements, they commonly overlook the long-term impact of such arrangements on employee pension savings. Truly forward-looking HR and reward teams are starting to integrate financial education at key life stages into their employee benefit strategies.
The forgotten knock-on effect
Families will often carefully calculate how their income will work during periods of part-time work. But reduced pension saving and the knock-on effect on long-term savings pots are often forgotten. However, maintaining prior levels of pension contributions might add only a few pounds to their budgeting at this stage, but could really help protect their financial future. Arming staff with key information and referral to guidance and advice solutions at the right time can massively reduce the gender pension gap. This doesn’t need to cost employers the earth; simple but effective education campaigns have a big impact.
These shouldn’t just be limited to workplace pension saving; for most workers of all sexes, the state pension is a very important foundation of saving. And, for a woman whose partner is a higher earner, not registering for child benefit can be a mistake. Even though they won’t be entitled to the cash benefit, by signing up they will protect their valuable state pension credits for the years where they might be a stay-at-home parent. Giving your staff this kind of information costs very little but reaps genuine financial rewards they will thank you for.
Affordability for women is a common theme – 86 per cent of lone parent families are headed by women. Faced with many more present and pressing challenges, long-term savings often fall by the wayside. Integrating other employee benefits centred on affordability (discount schemes, flex, salary exchange, etc) into the conversation with staff around pension saving can help alleviate financial stress.
When designing education and support campaigns, employers should consider that, according to research, women in general have a harder time talking about money. For example, 80 per cent of women hold back from talking about money with family and friends, and three-quarters have no idea how much pension income they need to retire.
Conversely, some estimates show women are expected to control 60 per cent of the UK’s wealth by 2025. This is only a few years away, so it is vital both for individuals and society as a whole that we make this money work as hard as possible. This starts with opening the conversation, and employers are ideally placed to help.
Building investment confidence is critical and this is a key topic to address when tackling savings gender disparities. Women on average tend to prefer cash as an asset class, as there are no risks of a fall in value. But while cash is a great option for short-term savings, over the long term cash is unsuitable as it loses spending power in real terms each year.
A bit of knowledge can go a long way and knowing the right questions to ask, or the things to consider at different life stages, can make a real difference to the women in your organisation. So have you started the conversation with your staff yet?
Rachel Meadows is head of proposition, pensions and savings at Broadstone