Today, Friday, 10 November is Equal Pay Day. It’s the day that marks the point in the year when women effectively stop being paid relative to men. Why? Three simple words with very wide ramifications: gender pay gap. The fact that women still earn almost a fifth less than men (18.4%), means from today up until the end of the year, we’re effectively working for free.
If you’re a woman and feeling rather annoyed that the rest of the year’s hard toil will effectively be done gratis, no-one can blame you. The Equal Pay Act of 1970 made it illegal to pay men and women differently for the same work. Unfortunately, 47 years later and the gender pay gap still exists - and if you think this is nothing but a construct of angry feminists - think again. The Office for National Statistics, the UK’s most prominent office in charge of number keeping, has statistics going back more than 20 years showing the gap between what men and women are paid.
How can there be a gender pay gap, when it’s illegal? Well, despite great inroads made in terms of gender equality, women are still the primary caregivers - they’re more than likely to be the ones opting out of work to look after an ill or elderly relative or to raise a family. This often means that at the time when most men are getting promoted and enjoying pay rises, women may find their careers ground to a stuttering halt. Companies lose experienced talent and women find it harder to re-enter the workforce at a later stage, not least as rapidly advancing technology fundamentally changes the jobs they once held.
Here’s the rub: while we’re all fixated on the unfairness of the gender pay gap and events like equal pay day, we’re probably not thinking about the long term implications all of this has on our personal finances.
If you earn less, basic maths means you will have less to save. And if you have less money, you’re probably less likely to want to take more risk with that money, which could go some way in explaining the countless pieces of research out there suggesting that women are more risk averse than men.
The statistics back this up - while women hold more ISAs than men according to HMRC figures, meaning we’re arguably more diligent savers, women hold far more cash ISAs while men take the plunge and opt for a stocks & shares ISA.
Granted, the stock market is a more risky option than cash, but it is a well-established fact that over the long term equities tend to outperform bonds. Good evidence of this is the Barclays Equity Gilt Study 2017 which contains data on UK equity, bond and cash returns from the end of 1899 to the end of last year. This research shows that the stock market has outperformed cash in 75% of all the five-year periods since 1900, rising to 91% of the 10-year periods. Over a period of 18 years, the chance of the stock market outpacing cash is 99%.
As women we risk falling into a glaring ‘investment gap’ by leaving our money in cash and steering clear of the stock market. But that’s not the only personal finance gap we need to be wary of. There’s also a glaring gender pensions gap - research from the pensions consultancy Mercer has shown that while the gender pay gap stands at around 16% in the EU, it’s knock-on effect on women’s pension savings over time, means the gender pension gap stands at more than double this at 40%.1
Let’s say you never have children and you never need to take care of someone ill or elderly. In fact, let’s say your life journey as a woman is such that you work fulltime throughout most of your career and earn a decent salary. Guess what? You’ll still end up with a lower pension than a man following a similar working life, thanks to the gender pay gap. According to research from the Pensions Policy Institute (PPI), this means a high earning woman can expect a similar pension outcome to that of a median earning man.
And it’s not just our private pension savings that are impacted, women also end up with smaller state pensions. The Cridland report into the state pension age reiterated this, finding that in the first year of retirement women are expected to be left with a retirement income 25% less than their male counterparts.
Other challenges which women need to face up to include the erosion of widows’ pensions in both private and state systems. And it’s worth remembering that tax rules dictate a limit to how much you can put into a pension each year. While ‘carry forward’ rules mean you can take forward any unused pension allowances from previous years, you can only contribute as much as you’ve earned in a given year up to a maximum of £40k. So to put it bluntly: while you’re in work and earning, it’s important to stuff as much of any spare cash you have into your pension to ensure you don’t spend your golden years in poverty.
If you needed another stat to put this into context, here’s one from the Pensions Policy Institute:
76% of women over 60 are either single, widowed or divorced when they die, meaning the ability of women to accumulate a pension for their later life is crucial to their wellbeing.
Ladies - we might not have much control over things like the gender pay gap or equal pay day, and we can’t always control whether we could have that pay rise or promotion. But we do have control over our personal finances. Make sure your savings are working hard enough by taking the appropriate level of risk. And whatever you do, save into a pension. As US investor Sally Krawcheck puts it: Empowerment actually means to be given power. And money is power.
Visit our Women & Money page for some video guides about how to mind the gap in your personal finances.
1 The Gender Pension Gap – From Awareness to Action, Mercer, June 2017
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