In a world of stagnant wages, rising prices, low interest rates, increasing longevity and the fact we can no longer rely on the state to look after us in old age, investing has become a necessity- especially if you’re female. Why? Three simple words with very wide ramifications: Gender pay gap. Women are still paid less than men, and as long as we fixate on the unfairness of this, we risk neglecting to address the very real long term implications this thorny issue has on our finances.
In combination with earning less, women are also more likely to go part time or take career breaks to look after family, which often means they are saving less at the most pivotal time. The more you invest at a younger age, the more you’ll have when you’re older. And the stakes are high, the gender pensions gap is very real, with women in their 60s having on average £100K less in their pension pot compared to men of the same age.
Anyone can invest and chances are you already are! If you are in full-time work, you will be automatically enrolled into your workplace pension scheme. The best thing about it is that it’s essentially free money: a percentage will be deducted from your salary; your employer will contribute on top of that and you will also receive tax relief from the government. This is all then invested to build up a pension pot. If you’re self-employed you’ll need to think about setting up your own pension or investments in order to save for your retirement.
According to the Department of Work and Pensions, more women (88%) are enrolled and saving into a pension than men (86%). So, while we still have a gender pension gap, it’s encouraging to see the situation improving as more women take control of their financial futures. And there are small steps that we can all take to help us prepare better for the future.
For example, Fidelity’s research and report, The Financial Power of Women, found that if a woman invested an extra 1% of her salary into her workplace pension, she would close the gender pension gap in retirement.
Of course, it’s not just retirement we need to consider when thinking about future life goals. No matter what you want to achieve or experience, be it a once in a lifetime trip around the world, getting married, starting a family, or buying your first home; all these milestones cost money and can be significantly helped by starting to invest as soon as you can.
Many parents will also want to put savings in place for their child, and the good news is that every child also has their very own ISA allowance too. To put this in perspective, if you were to save £50 a month into the average JISA when your child was born, by the time they reach 18 years old, they’ll have accrued a significant £31,8183.
If you are a parent or carer don’t forget to keep saving for your own future too! Time taken off work can mean time when you’re not saving into your pension – meaning less money in retirement. However, there are steps you can take to ensure any career break you do take doesn’t adversely affect your future retirement savings. Fidelity has found that for every two years off work you should save £4.90 a day extra into your pension when you’re back at work in order to close the pension gap4.
The older we get, the more we naturally question how salary and savings will come together to support us. While the focus is often on life changing experiences such as buying a house, going travelling or starting a family, retirement is an equally important part of the mix. Investing can be a great way to prepare for your future – and it doesn’t take a big amount to get started. Taking small steps by investing a little and often will reap rewards later on.
The full report is available to download from the GET INvested page: Fidelity.co.uk/womenandmoney
2 Source: Automatic Enrolment evaluation report 2019, February 2020
3 Source: Association of Investment Companies – Saving for children with investment companies November 2019. Performance for the average investment company is the % share price total return for the weighted average investment company (excluding VCTs and 3i). Eighteen-year performance is from 1 November 2001 to 31 October 2019. Source: AIC/Morningstar
4 Source: Based on calculations that a 25-year-old earning the UK average salary of £28,600 in April 2020 will, under auto-enrolment, be paying a total of £1797.12 a year into their pension (taking into account the 2019/20 qualifying earnings bands for auto-enrolment contributions). That’s £147.57 a month made up of their contributions (5% of qualifying salary) and their employer’s (3% of qualifying salary). Retirement Maths suggests that if they take two years off work, they need to pay 14% of total salary to hit their targets. 14% of total salary at this level is £4,004 a year. They already pay in £1797.12 so need to come up with a contribution of £2206.88 a year. To add the required £2206.88 of pension contributions, after tax relief, would require a further £1765.50 from their annual take home salary – or £147.13 a month (£4.90 a day). This is compared to the recommended 13% of income each year that a person in full time work should save, equating to £4.27 a day. Women who take 2 years out of full time work would need to pay in an extra 64p a day to make up the difference, £4.90.