Being a woman doesn’t stop you building wealth, but it does make it a lot harder!

Lower wages, caring responsibilities and career breaks all make building wealth harder for women. Alice Guy investigates what you can do about it.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Did you know that building wealth is harder if you’re a woman? The average woman’s retirement income is less than half a man’s. And that’s not all! Women’s savings also lag behind men’s by nearly 30%.

But it’s not for want of trying. With part-time work, career breaks and the gender pay gap, women earn significantly less than men over their lifetime. And that means they have to work a lot harder to build wealth, a decent pension pot or savings.

Here, I take a look at why it’s often so hard for women to build wealth and whether there’s any way they can get building wealth faster.

[top_pitch]

Lower wages

Women earn an average of 16% less than men throughout their careers. It’s partly because women often choose lower-paid jobs to fit around caring commitments. But it’s also due to missed promotions as many women prioritise their family over their career.

And earning less means that’s it’s harder to find disposable income to add to that pension pot or savings account.

Career gaps hamper building wealth

Many women also take time away from the workplace to look after their children or to care for older relatives. Women are more likely to become unpaid carers than men, and Carers UK estimates that one in four women aged 50-64 has caring responsibilities for older or disabled relatives.

That means many women may have years where they can’t pay into a pension or save up for their retirement.

Part-time work

When mums return to work after having children, they often chose to go part-time to fit around school pickups. That means they earn less, but it also means they may be less likely to get promoted at work.

And part-time work means there’s less spare cash for women to pay into savings or pensions.

[middle_pitch]

The tax system makes building wealth harder

The tax system means that it can make sense to pay more money into the higher earner’s pension if you’re part of a couple. That’s because higher earners get 40% pension tax relief whereas non-earners can only pay in a maximum of £2,880 per year into their pension.

That means stay-at-home mums or full-time unpaid carers can miss out at the expense of their partner’s pension.

Smaller pension pots and savings

By the time women reach retirement, all of these factors add up and make it harder to build wealth. As a result, the average woman’s pension pot is worth around half the average man’s pension.

Research from Legal & General found that women start their careers with a 17% pension gap. By the time they reach retirement, this gap widens to 56%. The research shows that women in their 50s have an average pension pot of £43,000 compared with £82,000 for men. Worryingly, 25% of women have less than £5,000 saved in their pension.

Not only that, but women’s savings are also much lower than men’s. Legal & General found that women aged over 50 have around £29,000 in cash savings on average, while men in the same age group have just over £40,000.

How to start building wealth

The good news is that you can take action to start building wealth as a woman. Here are some of my top tips:

  • Start a pension when you’re young – pay in as much as possible to build wealth when you’re in your twenties and thirties.
  • Invest your pension in an index tracker fund – these funds tend to have low fees, so your wealth will grow as much as possible over time.
  • Consider sharing childcare – if it’s possible, it can be great to share childcare with your partner. That way you may be able to earn more and pay more into your pension.
  • Pay into your pension even if you’re not working – if you can afford it, you’re allowed to contribute up to £2,880 into your pension even if you’re a non-earner. The government tops it up to £3,600.
  • Move jobs to get a pay rise – research shows that you’re likely to get paid more if you move jobs every few years.
  • Max out your company pension – make sure you contribute enough to get the maximum amount from your company as this is essentially free money.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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