In recent years, there have been a number of headline stories highlighting how women may be less financially resilient than men and how the gender pay gap may have influenced this. We take a look at the research and statistics beneath the headlines, and explore how employers can provide targeted support to help improve women’s financial resilience.
What is financial wellbeing?
The UK Government – through the Money and Pensions Service (MaPS) – defines individual financial wellbeing as ‘feeling secure and in control’ of both short-term and long-term finances, and has developed five core markers to indicate the status of financial wellbeing across the UK. These are; getting a meaningful financial education, saving regularly, manging credit, accessing debt advice and making good decisions about future wellbeing.
Poor financial wellbeing has wider ramifications than just future planning; research by MaPS1 shows that adults who need debt advice are more likely to be struggling with their mental health, and financial concerns can be a key cause of stress and anxiety. It’s also not an issue that solely affects those who are unemployed – 75% of those who are in need of debt advice are working adults. From Aon’s Benefits and Trends survey, we know that 61% of employers agree that they are responsible for influencing employee financial wellbeing, and nearly all employers (98%) say it is important to increase employee engagement and understanding with their benefits and financial wellbeing. It is clear that there is a need for better financial support, and employers have an impetus for improvement – but what does this look like for women, specifically?
Gender Gap
Although the gender pay gap is closing, as of April 2020 there was still a 7.4% pay gap among full-time employees in the UK. Positively, there are signs of this changing for younger generations in the workforce; in 2020, the gender pay gap remained close to zero for full-time employees aged under 402.
However, there is another gender gap for employers to focus on; the pensions gap. Research by Prospect3 shows that in 2018-19, female pensioners had a 40% lower pension income than male pensioners. In part, this is due to an imbalance in the level of occupational and private pensions saving between men and women – over the last decade, men’s occupational pensions have risen 83% more per week than women’s (£23 for women, and £42 for men).4
Women aged 25 taking a 5 year career break will accumulate a pension pot 33% smaller than their male counterparts.5
This is a key area where there is an opportunity for employers to provide support which can help to bridge the savings gap. Companies can help mitigate the long-term financial impact of women taking employment breaks or reducing working hours, by increasing communications around the effect that this will have on pension savings. Modelling some illustrative long-term performance examples and proactively demonstrating the financial impact will help employees visualise how increasing pension savings to offset a reduction in working hours can make a difference to their retirement fund.
Financial engagement
Research by the Financial Conduct Authority (FCA) shows that women are more likely to have lower engagement levels than men when it comes to their pensions; just one in eight women are very engaged with their pension (compared to one in four men). Women are less likely to read their DC pension statement, review the value of their pot, choose to increase contributions or know about pension charges. The same research shows that just over half of women are aware of how much they pay into their pension each month.
There is a clear onus on employers to create inclusive pension schemes, and help support people’s pensions journeys. Pensions should be accessible to all, communications can be targeted and engagement should be monitored. One of the major benefits of pensions technology for the employer is the insights they can get around employee engagement. If users aren’t interacting with their pensions dashboard and there is a clear demographic trend within the aggregated data, then employers can design a communications roadmap to boost engagement.
Improving financial capability
It could be that some of these differences in personal finances are driven by the ‘perfect storm’ of low confidence and lack of awareness. Research by the FCA which grades individuals against a capability matrix shows that the majority of those have low financial knowledge and confidence in manging financial matters were women (60%)6.
Men, on average, had more investible assets than women (£47k vs £30k)5
As with most things, lack of financial knowledge can impact financial decision-making. The vast majority of research shows that women are more risk averse than men, particularly when it comes to financial investments7, with some researchers suggesting that this may be due to a perceived lack of knowledge or confidence in decision-making. This is further supported by research which shows that a high degree of financial literacy can improve risk tolerance, and a 2008 study by the European Business School found that – particularly for women – financial advice can help to overcome risk aversion8. However, it’s important to highlight that there are a number of other factors which can change an individual’s attitude to risk; age, dependants, personality type, emotional state and income can all influence risk tolerance or aversion.
Here, there is an opportunity for employers to improve financial capability through targeted financial education. Targeted seminars or webinars can provide much-needed information to support financial decision making, whether employees are at the beginning of their career or nearing retirement. These could help to elevate financial capability, and provide a safe environment for questions and opportunity for product demonstrations. They can be excellent platforms for companies to introduce or showcase their financial benefits, such as workplace ISAs or share saving schemes.
Although there are signs of improvement, there is still plenty of opportunity to narrow the financial wellbeing gap between men and women – with employers poised to play an integral role in doing so. Employers should take a holistic approach; once-a-year pension communications might be a statutory requirement, but they feel old hat in a world where we have TikTok and Amazon Prime. Embracing technology – and the plethora of data insights it brings – can help shape financial wellbeing strategy and ensure that the approach is moving the dial in the right direction.
1https://moneyandpensionsservice.org.uk/wp-content/uploads/2020/01/UK-Strategy-for-Financial-Wellbeing-2020-2030-Money-and-Pensions-Service.pdf
2https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2020
3https://library.prospect.org.uk/documents/201901194_tackling_the_gender_pension_gap_2019
4https://www.insuringwomensfutures.co.uk/uploads/2017/03/COH_J012646-IWF-Pension-Life-Journey-Report-Update-P2.pdf
5https://www.insuringwomensfutures.co.uk/uploads/2017/03/COH_J012646-IWF-Pension-Life-Journey-Report-Update-P2.pdf
6https://www.fca.org.uk/publication/research/financial-lives-survey-2020.pdf
7http://www.pensions-institute.org/wp-content/uploads/wp1912.pdf
8https://papers.ssrn.com/sol3/papers.cfm?abstract_id=968197
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