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Finance is a feminist issue. As the FT’s personal finance editor, I feel qualified to say that the financial system frequently fails women. It is structurally rigged against us — so much so, that “having children” could top any list of the financial mistakes women make.
It’s certainly not topping my list below — though many of the issues can be blamed on the gender pay gap. The pay disparity is put down to the disruptive effects of raising a family on a woman’s career prospects and earnings potential. But this imbalance is further magnified by the “gender pensions gap”, which many women won’t fully wake up to for decades to come. The astronomical cost of childcare and the stress of juggling work and family life are further factors — big problems, with no easy solutions.
So what can you do? The biggest solution is raising awareness. I describe these as six “mistakes” as some remedial action can usually be taken, but we can’t say these problems are solely women’s fault. Similarly, not all women will be affected by the issues below — and some mistakes can just as easily be made by men.
Considering how the financial odds are stacked against women, the danger is that any mistakes we make will have a more lasting impact.
Mistake 1: Not saving enough for retirement
Is it any surprise that the “gender pensions gap” is nearly 40 per cent — more than double the gender pay gap — when the system is so biased against women?
Let’s take defined contribution pensions. Workers build up a pot of savings over their lifetime, which can be accessed in retirement — but when you’ve spent it, that’s it.
Women have a double problem here. Not only do they save less (factors include lower pay, the impact of career breaks and part-time working) they also live for longer. The obvious solution is saving more, but that can be tricky (see above).
Starting to save earlier will help. Higher earners could fund a pension for their partners. Older, wealthier readers could consider funding a stakeholder pension for their daughters and granddaughters.
But the government’s much-lauded policy of automatically enrolling workers into a company pension excludes millions of low earners and part-time workers unless they specifically opt in. Many of these will be women.
Three-quarters of women have “no idea” how much pension income they need to retire, according to a study in this month’s edition of Good Housekeeping magazine, and nearly half said they were relying solely on the state pension as they “couldn’t afford to pay into another pension”. This means women could be losing out on “free money” from an employer’s pension contributions too.
Mistake 2: Pensions, marriage and divorce
The pensions system hasn’t kept up with modern family life. Couples today are more likely to cohabit than get married or form a civil partnership, which can present serious problems if one of you dies — see the case of Denise Brewster in Northern Ireland who successfully took her late partner’s employer to court when they failed to grant her survivor’s pension benefits.
One obvious action point is to make sure all of your pension providers have an up-to-date “nominated beneficiaries” form.
If you are unmarried and cohabiting in a property over £325,000 in value, also consider the impact of inheritance tax if one of you were to die suddenly. See the FT Money article “Getting married — for tax reasons”.
Mistake 3: Not claiming child benefit
If one half of a couple earns more than £60,000 then you lose your entitlement to child benefit. However, stay-at-home parents with a high-earning partner will lose out on valuable state pension credits if they fail to register online — even if they do not qualify for child benefit. Make sure you sign up — and while you’re at it, click here to sign the petition to reform the system and allow backdated claims.
Mistake 4: Being too fond of cash
Another reason women can end up with less in retirement are the poor returns on cash savings compared to stock market-linked investments.
HMRC statistics show that women save much more into cash Isas, where years of poor interest rates and inflation have hampered performance, whereas men are more likely to hold a stocks and shares Isa. Interested to learn more? Read our free special report on Isas here. The stats also show that women are more likely to favour cash for children’s Junior Isa accounts. Considering Jisas are designed to be invested for up to 18 years, returns on stocks and shares are likely to be far superior.
Mistake 5: Not having a ‘f*** off fund’
This term was defined by the US writer Paulette Perhach as having enough money to leave a bad job or failing relationship, and her article on the subject should be compulsory reading for all young people regardless of gender. In it, she chronicles how prioritising saving over spending causes short-term pain, but long-term gains in the form of financial independence — far more fashionable than a splurge in the mall. I know plenty of men who are shopaholics or in bad relationships, but this doesn’t distract from the impact of this story.
Mistake 6: Not asking for a pay rise
The only good thing about the gender pay gap is that many companies are much more receptive to boosting women’s career prospects and pay packets. But if you don’t ask, you won’t necessarily get. I’ve written this column setting out how to make a business case for a raise — and consider asking for training too, as we all need to invest in building our skills for the future as well as our retirement funds.