It might sound strange to modern ears to talk about “financial planning for women”. Yet with earning inequalities still making the headlines and even talk of a “pension gender pay gap” it is important for women that women feel confident in planning their wealth and financial affairs.
You might be tempted to think that inequality has largely been eradicated in the UK today, as the country has progressed toward greater parity in the workplace. The state pension age, for instance, is now the same for women as it is for men (i.e. 65 in 2019-20).
Yet in our experience as financial planners here at Cedar House, there are still a number of enduring disparities between men and women (e.g. attitudes to family roles, lower average career earnings and different life expectancies) which require women to adopt a tailored approach to their own financial planning.
We understand that some women will naturally feel confident taking charge of their own financial planning, whilst others might need encouragement. After all, recent surveys suggest that over half of married women focus on managing short-term finances, and defer longer-term financial planning decisions to their husbands. Moreover, 55% of respondents to one survey stated that their husbands discourage them from participating in managing the family’s long-term finances.
Yet two-thirds of married women state that they would feel able to take control of this area of their financial lives, should their husband unexpectedly pass away. This is positive news, and the purpose of this short guide is to give women a bit more confidence in this whole area – particularly on the subject of pension planning.
Single & married women
Women who are single or in long term relationships (such as marriage) face different challenges when it comes to retirement planning.
On the one hand, if you are single then you are likely used to taking charge of your own finances, and likely won’t find yourself in a situation where a spouse might discourage you from managing your pension. You might be more confident in understanding how pensions work.
On the other hand, single women often find themselves with less financial manoeuvrability. You have to rely on one income to pay the bills, for instance, rather than two. Single women with dependent children can find the thought of saving into a pension particularly challenging since just getting by financially can be a real struggle.
For women in the latter position, it will be important to think about ways to increasingly look after yourself first, financially speaking, as your children get older and become more financially independent. Remember, your adult children have a lifetime in front of them to earn money and build up wealth for their own retirement. You don’t have the same luxury.
For women who are married, in a civil partnership or long term relationship, it is important that you have your own pension provisions in place. Moreover, you should ideally be in control of these provisions and should also understand them fully. We encourage you not to just rely on your husband or partner to sort it all out for you. In the unfortunate event that separation or early bereavement happens to you, then you do not want to find yourself needing to figure all of this out during very emotionally-difficult circumstances.
This probably makes us sound very negative about marriage, but that’s not the case. In fact, marriage can bring a lot of financial security and long-term benefits to women under the current tax system in the UK. For instance, spouses normally inherit all of their partner’s estate completely free of inheritance tax when the former dies. Cohabiting partners do not have this same benefit, even if they have been together for decades and have children.
On this latter point, if you are currently in a long-term, committed relationship, but are not married or in a civil partnership then it might be worth “having the conversation”. You might not feel that you need a “piece of paper” for your relationship to be legitimate or real, but giving it some kind of legal recognition can bring you both a lot more security in the long term with regards to inheritance tax, pensions, assets and property should the worst one day happen.
Taking a career “time out”
It isn’t very fair at all, but the fact is that British men tend to build up a better retirement income via their workplace and state pensions compared to women, who can find themselves out of work for protracted periods when having children.
This “motherhood penalty” results in many women missing several years when they could, otherwise, be earning and putting money aside towards their future retirement. In this situation, if you have a partner or spouse then it is probably worth having conversations soon about how to address this in your own situation.
For instance, suppose your spouse earns quite a high salary (e.g. £50,000+) and intends to continue working at the point when you plan to take time out to look after children. Then it might be worth talking about putting some of their earnings towards your state pension, in the form of Voluntary National Insurance contributions. Alternatively, if you qualify then you should certainly take advantage of the pension credits you can accrue during your career break.
Putting a financial plan together is important for anyone to do, and it is a great way for women to achieve more self-empowerment and confidence with regards to their long-term future.
Speaking with an independent financial adviser can be a great way to gather your thoughts and begin to better understand the complex landscape of pensions, tax planning and inheritance tax. If you are interested in talking to us here at Cedar House, then we invite you to get in touch to arrange a free, no-commitment financial consultation with a member of our team.