The gap between the retirement savings for men and women shows no sign of narrowing, with women, on average, needing to work an extra 19 years to retire with the same pensions savings as men.
A report into the gender pension gap shows that women build up average pension savings of £69,000 during their lifetimes. This compares with £205,000 for men, according to Now: Pensions.
This makes a huge difference to retirement incomes: a pot of £69,000 will generate an income of approximately £4,800, while a pot of £205,000 will generate an income of £14,350.
The culprits will be familiar – career breaks for caring responsibilities account for around £39,000 in lost pension savings, and the gender pay gap also plays a role.
But without a wholesale shift in gender politics, these problems are unlikely to change in the short term. Women need to look at what they can control.
Knowing how much you have, and how long you’ve got to save is the first step. There are plenty of helpful online calculators that can help you do this, including the Government’s Money Helper pension calculator.
What are my options?
If you have a shortfall, the solution isn’t complicated, but it may be difficult to hear.
There are three options open to you:
- Save more
- Invest better, or
- Adapt your expectations.
Many people plump first for saving more, or condemn themselves to working longer, but a change in investment strategy could make a significant difference and may be more palatable.
The level of risk you take with your portfolio will be personal to you. It will take into account how comfortable you are with stock market investment, how long you have to retirement, and how much you have to invest.
In general, if you have a long time to invest, plenty of time to retirement and the prospect of stock market volatility doesn’t keep you awake at night, you should be taking more risk. If you take more risk, your money may grow faster over the long term.
Repeated studies have shown that women tend to be less comfortable with investment risk. There is a debate over whether this is because they have less cash in the first place, but either way, it may be holding back their long-term savings.
The MSCI World index has returned an average of 8.5% since 1987. There may have been bumps along the way, but savers that have embraced stock market investment have been significantly better off.
While we would not suggest that someone who is in cash should suddenly invest in an artificial intelligence (AI) or emerging market fund, there are ways to nudge risk higher in a portfolio without doing anything scary.
If you have a lot of cash, for example, consider switching some into a multi-asset fund. These invest in a blended portfolio of equities and bonds, and there are different options depending on how much risk you want to take. There is still a risk that your capital could fall in the short term, but these have generally performed much better than cash over the long term.
We like the BNY Mellon Multi-Asset Income fund. It is a lower-cost flexible fund, aiming to provide investors with a stable and growing income, as well as capital growth. It is run by a capable management team, under the experienced Paul Flood, and risk is carefully managed.
If you already hold a multi-asset fund – and, in practice, this is where your company pension is likely to be invested – consider introducing a straight equity fund alongside it.
Global equity income funds are a good place to start. These funds will look for the best dividend-paying companies across the globe. These tend to be larger, more stable companies such as Unilever, GSK, or Microsoft.
In this area, we like the Fidelity Global Dividend and JPM Global Equity Income funds. Both funds take a safety-first approach and are backed by a strong research function at their respective groups.
IFSL Evenlode Global Income is another option from a specialist manager with a strong track record. The security of a regular income should help mitigate some of the effects of market volatility. Returns will never be exciting, but they can be a way to boost the long-term performance of a retirement portfolio without doing anything too frightening.
The final option is for those investors who already have stock market funds in their portfolio and want to try something a little more adventurous. This should never be the whole of your portfolio, but it can be worth earmarking, say, 10-20% for this type of investment.
The areas to try could be smaller companies or emerging markets. Smaller companies have had a difficult time, but often bounce back strongly. Smaller companies tend to be sensitive to interest rates, and it appears that the ECB may be the first to cut.
If that’s the case, investors might finally start to see the value in some of Europe’s smaller companies. Funds such as Janus Henderson European Smaller Companies or Jupiter European Smaller Companies will be in a good position to benefit.
Emerging markets have increasing power and influence on the world stage. Equally, they are often growing much faster. India, for example, is set to grow at 6.8% in 2024 – that compares with just 0.5% for the UK and just 0.2% for Germany (source: International Monetary Fund, April 2024).
We like FP Carmignac Emerging Markets and FSSA Global Emerging Markets Focus. These funds are strong, well-resourced groups with plenty of experience in finding opportunities and dodging the pitfalls.
Shifting the investment mix of your pension won’t close the gender pension gap on its own, but it can help secure a better retirement. Think of it as ‘me too’ for your money.
Juliet Schooling Latter is research director at FundCalibre
