“Look, what we’re really talking about is: life is changing, and life is a risky business,” Jane Portas tells a rapt crowd at the BFI Imax in London. “It’s not about women versus men, it’s about understanding the difference, every step of the way.”
Portas (pictured right), a partner at accountancy giant PwC, is co-founder of the Insuring Women’s Futures initiative, and her speech frames a project set up to find out why 49 years after the Equal Pay Act women are still poorer than men, and what can be done about it.
Spanning three years and involving 150 experts from across financial services, the initiative has been led by the Chartered Insurance Institute. It draws on the wealth of experience in the sector, which has the most day-to-day dealings with people and their money and so is key to helping the half of the population that has been left behind.
The figures in the project’s ‘manifesto’ are both shocking and depressingly familiar. The gender pay gap is not expected to close until 2050. Women aged 25 will accumulate a 20 per cent lower workplace pension than a man the same age. Men’s average lifetime earnings are 80 per cent more than women’s. Of all unpaid carers, 58 per cent are women.
Sian Fisher, IWF chair and chief executive of the CII (pictured left), acknowledges the scale of the problem they are trying to solve. She says: “We know some of the issues needing to be addressed are deep-rooted and will take time to have their full effect. We need to empower people to come together to talk about their financial life.”
A baby girl born today has a 18 per cent chance of living to 100, according to the Office for National Statistics. What kind of life experience she enjoys or endures will hinge on a series of trigger points, what Portas calls “moments that matter”.
“We looked at the areas of greatest need and opportunity in a woman’s life,” she says. “By tapping in to these moments we do not just improve women’s financial resilience, we improve everyone’s.”
Education, work, family and later life: these sum up the main intervention opportunities. The IWF initiative is calling for unified action from those in finance, government, regulators, trade bodies, employers, the third sector and society itself, to cease being passive observers in the fight for female financial resilience. Taking each trigger point in turn reveals the scale of the challenges and of the strategies required to overcome them.
Inequalities in male versus female financial resilience start young. Female apprentices earn 21 per cent less per hour than their male counterparts, largely due to the sector they choose to work in, according to the Young Women’s Trust in 2016. However, in this instance the choice is loaded.
“Caring professions that are favoured by women are less well paid than other areas,” says Baroness Ros Altmann, a former pensions minister. “This is a function of social norms, which need to change.”
Half of boys and 42 per cent of girls go to university, with women doing better; 73 per cent get a 2:1, compared to 69 per cent of men, the CII found in 2018. But the Department for Education reports female graduates earn £1,600 less than male counterparts from the outset.
“The real solution lies in long-term cultural change, where society values roles dominated by women as much as those dominated by men,” says Hargreaves Lansdown personal finance analyst Sarah Coles.
“In the short term, girls need positive female role models throughout school, promoting subjects that tend to be dominated by boys – and lead to higher pay.”
Women make up only 17 per cent of engineering, technology and computer science undergraduates, and 37 per cent for maths, the Higher Education Statistics Agency found in 2017, courses that lead to better-paid jobs. By the CII’s count, twice as many female graduates work in lower-skilled jobs than men.
Altmann is hopeful that, as Britain extends further into an ageing society – the ONS projects a quarter of people in the UK will be aged 65 or older by 2042, up from 18 per cent today – caring professions favoured by women will become more valuable.
“Market forces may well increase the value placed on caring. Increasing use of technology can replace some forms of work, but those requiring human interaction may not be so easily automated,” she says.
The set-up in schools
But this is too slow for today’s young women. The IWF project wants the financial impact of career choices taught in schools.
Coles recommends careers fairs “that can highlight opportunities for their skills within organisations and industries they may not have considered”, and thoughtful picking of specialisms.
“The lawyer who chooses commercial law will find themselves on a faster track financially than one who specialises in families and charities,” she says.
In the national gender pay gap – the difference between male and female earnings – full-time working men receive 9 per cent higher wages, according to the ONS, little changed from 2018 and a decline of only 0.6 per cent since 2012.
It rises to 17 per cent when including part-time workers. It is 11 per cent among the full-time over-40s. Full-time men aged over 50 earn 15 per cent more.
“The gender pay gap is a deep-rooted problem, ingrained in our society,” says AJ Bell personal finance analyst Laura Suter, pointing out that the problem, as for apprentices, stems from ideas about certain jobs being the preserve of one sex. According to the ONS, eight in every 10 employees in caring, leisure and service occupations, which tend to be lower paid, are women.
Suter and the IWF initiative believe education and awareness are key to breaking these stereotypes, helped by companies with more than 250 employees now having to report their gender pay gap.
The legal minimum is that companies pay men and women doing the same jobs at the same level the same amount. But that doesn’t solve the issue.
“Much of the gender pay gap is because more men are in senior positions and this skews the averages,” Suter points out.
Two-thirds (65 per cent) of managers, directors and senior officials are men, according to the ONS. One in every 30 women are on zero-hours contracts compared with one in 40 men, it found in 2017. A third of women versus a fifth of men are on contracts below the Living Wage, according to CII data from 2016.
Earning less means saving less and building up fewer assets – property, a workplace pension, investments – storing up problems for later. AJ Bell research suggests women who have entered income drawdown since April 2015 have an average pension fund worth £118,000 – a third less than the average man.
Experts say a major reason for these disparities is the care burden.
“Caring responsibilities lead to interrupted careers, or periods of part-time work, so women are less likely to reach the most senior positions,” says Altmann.
“Being out of the labour market means women’s skills can fall behind, and they have fewer opportunities to build up lasting networks and connections through a career.”
The IWF project wants a “national conversation” about who pays for the care burden, and who benefits from it, to address the gendered nature of social caring. It is calling for a carer’s pension top-up, and for the £10,000 earnings eligibility threshold for auto-enrolment to be lowered to bring in lower paid and part-time women.
Coles says: “Service and caring roles have their roots in the kind of support women traditionally provided without pay within family situations, so these skills are grotesquely undervalued.”
Adviser view: Petronella West, chief executive, Investment Quorum
Encourage the women in your life to have a clear roadmap. Saving and budgeting are hard, and having an end in mind is important. Tell them to put savings aside at the beginning of the month, with at least three months’ emergency money. Get those who aren’t to regularly invest into a stocks-and-shares Isa, and keep the direct debit rising in line with inflation. Women tend to be too hesitant with investment risk, but the difference in compound returns between 4 and 6 per cent a year over 10 years could leave them as much as 30 per cent better off. It’s the same with pensions – they might be invested for another 30 years, so can tolerate volatility. Get other women to see a financial adviser, or at least use the website tools on offer. Even women who don’t use an adviser should sit down with their pension and Isa valuations once a year.
Work and family
Home and professional lives are inextricably linked for most women, not a binary choice. But the system is rigged. Stay-at-home dads can leave their families thousands of pounds worse off because of flaws in policies meant to better share the parental load.
Half a million men became fathers last year, according to the ONS. But Shared Parental Leave, introduced four years ago to support a better split of caring responsibilities, has attracted just 4 per cent take up among parents because it is much less generous than private sector provision for mothers.
A review of the benefits available to new working parents is underway, with paternity pay and leave set to increase. Fathers are entitled to two weeks paternity leave on statutory pay of just £148.68 a week. As men are disproportionately in higher-paid professions and roles, mothers, who otherwise could have returned to work, usually remain the primary carer because it makes financial sense for the family, if not for her.
Suter says couples need to factor the mother’s lost pension contributions into the costs of having children. “It should be alongside childcare or nursery fees, so women don’t end up with a shortfall later in life.”
Flexible working, when embraced by employers and where performance is measured on output, can help women to continue to work, earn and save. However, some companies are still suspicious of those who are not office-based.
“Women who take on more childcare may need more flexibility in their working patterns, and are far more likely to work part-time,” says Coles. “They are also far more likely to cut their commuting time, which narrows their career opportunities. In business cultures that value presenteeism, women are overlooked for pay rises and promotions.”
More affordable, subsidised childcare would help. The Organisation for Economic Co-operation and Development in April singled out the UK as having the most expensive childcare system in the world.
The idea that caring is “just something women do” costs them in other ways, Coles says. Women who paid a price for flexibility while raising children are often earning less, so when someone needs to care for older relatives, couples feel women are more able to sacrifice their job.
Families are not always happy forever; nearly half of marriages end in divorce. The impact on women is underestimated and significantly higher than that on their male counterparts.
Only 29 per cent of divorced women have already saved or expect to save enough for a comfortable retirement, according to research by Netwealth, a wealth manager, compared with 44 per cent of divorced men.
“Many divorcing women do not realise the value of pensions, forego pension sharing in favour of property, and do not take proper financial advice,” says Altmann.
She wants the rules changed to require that divorcing partners have advice on the value of their pensions “so they can be fairly and properly assessed in settlements”. IWF is pressing the legal profession to make pension sharing the default position.
Life expectancy at birth in the UK last year was 79.3 years for men and 82.9 years for women. A man aged 65 today can expect to live another 18.6 years. For women this rises to 21 years.
Women live longer than men, but after a lifetime in less well paid professions, and on reduced earnings due to caring, they are much less prepared for later life. A £100,000 lower pension than men awaits them, according to Pension Policy Institute figures.
Women are not ignorant of the danger they face. In October a report by Interactive Investor, the online stockbroker, found less than a fifth of women are confident they will be able to maintain their standard of living in retirement – half the level of men. Women were twice as likely to work out of financial necessity.
Suter says: “Women’s pension savings are hit by the gender pay gap, part-time working and the increased burden of childcare costs. Then they face a triple whammy: they are not saving enough, are not investing that money and so are missing out on higher returns over the long-term, and they live longer so on average need bigger pots than men at retirement.”
To attack a lifetime of being left behind, Altmann wants an information campaign by the pensions industry encouraging higher contributions from women. The IWF project is pressuring the Money and Pension Service to make the promotion of gender-inclusive financial engagement and wellbeing a “strategic priority”. This includes separating out data on women’s financial resilience, or lack of, so it can be targeted for improvement.
Altmann says the government must also fix the state pension system, which disadvantages women: “Low-paid women earning less than £12,500 a year are having to pay 25 per cent extra for their pensions if their employer uses a net pay scheme.
“State pension rules only allow people to accrue an extra year of national insurance credit if they work a full year, not part-years, so women can lose out. Women earning less than the national insurance lower limit in part-time roles are excluded from state pension altogether.
“The fact that child benefit must be claimed, even if they are not entitled to it, or women get no credit for their state pension.”
Women need to be nudged to make their often smaller pension work harder – for example, by ditching their employer’s default pension fund, which given their life expectancy will probably be too risk-averse for them even in their 50s, something many won’t know.
Suter says: “Getting women to see the benefit of investing their money wisely and making clear the impact any gaps in contributing will have
is a good starting point.
“Employers also have a role to play in highlighting the benefits of maintaining pension payments, for example, throughout maternity leave, and offering enhanced pension packages for these women.”
The threat to older women’s financial resilience is real. One in 10 married women plan to rely on their spouse’s pension in retirement, the government’s Wealth and Assets survey found. Yet the fastest-growing age group for divorces is the over-50s. In co-habiting couples, partners have no wealth rights at all in the event of a break-up.
Helen Morrissey, pension specialist at Royal London, says the answer is to encourage young women to save as much as possible into a pension before they have children, but also to see it as their own personal safety net. “Women must be encouraged to save into a pension in their own right,” she says, “rather than relying on that of a partner”.
Expert view: Gregg McClymont
It’s time to treat caring as an economic activity
Women’s lifetime earnings are lower largely because of interrupted working lives due to caring responsibilities, which has a knock-on effect on their rates of pay and pension savings. We’re calling on the government to accept the principle that caring is an economic activity which should attract workplace pensions contributions.
Only around a third of people auto-enrolled are women. Reducing the earnings requirement for an auto-enrolment pension from £10,000 to the primary national insurance threshold of £8,632 could create nearly half a million new pension savers – three quarters of whom would be women. Ending the ‘net-pay anomaly’ would also provide an estimated 1.75 million low earners – the majority of whom are women – with much needed tax relief through auto-enrolment.
Gregg McClymont, director of policy and external affairs, The People’s Pension
What can be done?
The IWF project is making wide-ranging recommendations to improve female financial resilience at various life stages, starting with guidance in schools so young women can make financially informed study choices.
At work, it wants the employer’s pension contributions included in gender pay gap reporting, reform of the eligibility thresholds for auto-enrolment, and fairer flexible working policies.
The project is pressing for pension sharing to be the default position in divorce, and for society and government to confront the way caring is biased against women, including how carers’ pensions could help fix that.
In the financial sector, insurers are now working to ensure that secondary policyholders, the majority of whom are women, are informed of changes to terms as standard. Financial guidance bodies and regulators are being lobbied to collect and use female-specific data to inform policy and supervision.
Last but not least, men themselves have an important role to play in all this. Portas, on closing the IWF event, was very clear: “I call on all of you fathers to engage with your daughters, brothers, sisters, grandfathers and granddaughters – this is also your moment to really make it matter.”