The gender pay gap, pension divide and time off to have children are all major factors that impact women’s finances, according to AJ Bell’s Money Matters team.
Headed by Helena Morrissey, the six person, all-female team has released a report entitled ‘Financial Wobbly Bits’ to shine a light on the reasons why women save less and to provide tips on how to improve their financial situation.
Starting work
Financial discrepancies between men and women start as early as with their first job. Women are less demanding in their desired wage, the report found, and prioritise “softer” benefits such as holiday days and flexible working than financial bonuses.
“Our research found that only a third of women had ever successfully negotiated a pay rise and that three in five women have never asked for one,” the report said. “By not bartering on pay like men, women are leaving themselves poorer and helping to widen the gender pay gap.”
Pensions
When saving for retirement, men prioritise their future after work “far more” than women, the report found. Where people have paid into their pension, on average men have almost £49,000 in their retirement funds, compared with £32,000 for women.
Earning more means men have more cash to put into their pension, even if the percentage contribution is the same, giving them a larger pot and more chance of retiring early.
The firm’s research also found that half of women have never paid any additional cash into their pension pot above the minimum requirement, which is not enough to provide most people with a comfortable retirement.
“Women are also more likely to not have engaged with their pension at all. A third said they had no idea how much was in their pension pot,” the report said.
The cost of living
When it comes to the home, looking at heterosexual couples, 30% of men said they paid more towards the deposit than their partner, compared with 15% of women who contributed more.
“This highlights the higher savings levels that men have, but It’s also a financial risk for women: later on, if the couple break up, they’d have less equity in the home,” the report said.
A third of men also say they pay more on bills, compared with 9% of women, in many cases because the man is earning more. However, the report noted that this could also be down to how the couple splits the costs.
“Not having a clear 50:50 split down the middle highlights two things: firstly that the gender pay gap has a lot to answer for and more needs to be done so men and women have equal pay; and secondly that if you don’t have a clear financial split with each half of the couple paying a set share of the costs it can lead to financial inequality down the line,” the report said.
Although more men pay a larger percentage of the costs, they also tend to have more in savings, with 16% more, on average, kept in an emergency pot compared with their partners.
Single women
While much of the report looks at married couples, single women are also impacted negatively, with less in savings, smaller pension pots and higher costs than those in relationships.
On average, single women have around £1,000 less in an emergency savings fund than a single man (£4,600 vs £3,600) and around £11,00 less in their pension (£29,220 vs £40,130).
Children
Perhaps the biggest discrepancy comes when having children. The research showed that 40% of first-time fathers took no paternity leave at all, while a third took two weeks or less.
Conversely, a quarter of new mums took between nine months and three years off work, while another fifth took between three and nine months off. A further 8% were not working when they had the child.
Even as the child gets older, differences remain. With one child to care for, 92% of men go back to work full time, compared with just 55% of women. These numbers reduce with each additional child and by the third child, just a quarter of mums return to work versus 80% of dads. Additionally, 6% of men go from full-time to part-time work, compared with 38% of women.
Those that do return to work will be faced with exorbitant childcare costs – the average full-time nursery fees for a child under two years old is £14,800. This adversely affects women, with three times as many mums paying this cost than dads, the report found.
As well as a lower salary either during the maternity leave, by returning to work part-time, or through childcare costs, many also stop contributing to their pension at this time.
Divorce
Although assets tend to be split equally upon a divorce, pensions are usually ignored, with 73% of divorcees admitting that pensions were not taken into account during settlements.
“Even for those that did take pensions into account, half chose to offset other assets against it, which might work out well practically at the time, but has a huge impact on a woman’s pension savings when they come to retire,” the report said.
Other factors
Later in life, menopause can have an impact on women’s performance at work, the report said, with a fifth noting it had made them less confident in the workplace, while 12% said their performance had suffered.
Women are also more likely to be caught in the ‘sandwich’ of childcare costs and paying care costs for their elderly parents.
The reason for career breaks or early retirement are also different between the genders. More than a third of men take a break or retire early “because they could afford to”, but 30% of women did so for caring responsibilities, the report found.
A guide to help
The report highlighted some steps women can take to improve their finances:
- Start with making a plan and prioritising what you are saving for, before getting started with manageable amounts.
- Consider whether you have too much in cash and research whether your money could be going further through investing.
- Keep better tabs on your pension, tracking if you are on target for retirement and looking at how it is invested.
- Take all the free money available, including child benefits and pension credits.
- Have frank conversations with your partner around the cost of living and be more assertive when asking for pay rises.
- If in doubt, call in the experts and get financial advice.