In conversation with Poppy Fox

What is the best piece of financial advice you’ve received?

Get started early! In simple terms the advice I would give is to start sooner rather than later and not wait for the perfect time to put your finances in order. Life has taught me that the perfect time never comes! I also believe that one of the main reasons to start early is the power of compound interest, which Albert Einstein called the 8^th wonder of the world. So to put this in simple terms, if you start with £10,000 and returns are 5%, at the end of year one you have £10,500, so you start year two with a slightly higher amount. If this compounding happens each year then these incremental gains really start to add up. Assuming a 5% return each year, after 10 years the figure would have risen to £16,470 and after 40 years it would have risen to £73,584 which is pretty amazing. Yes, 40 years is a long time but that is still an impressive gain.  I would also mention that despite the popular misconception you don’t need millions to get started when it comes to financial advice and investing, so don’t be put off by thinking you need to be a millionaire. There are options out there for everybody so take control and get your plans in place! It really will pay off in later life. 

Why do women tend to have lower pensions than men?

I think this comes down to two things – the gender hurdles we face as women as well as our tendency to not take enough risk with our money. 

When I talk about the gender hurdles, I think there are four areas to mention. Firstly the motherhood penalty. Despite all the advances in technology this is something we cannot change! Men & women tend to have earnings parity early on in their careers, but research shows that by 10 years after the birth of their last child, women earn 20% less than their male counterparts. 

Then there is the childcare penalty that negative impacts women and their finances. UK childcare is some of the most expensive in the world. The average price of care for a child under two in a nursery is £6,300 per year – a rise of 7% since 2017. The bulk of childcare still tends to fall to women and many women opt to take career breaks or work part time in order to allow things to work best for their family. In reality, women struggle to ‘catch up’ once the children have grown up. 

The third point here is the good daughter penalty. Again, women tend to take on more caring responsibilities than men, impacting their earnings and consequently savings capacity. In 2016, around 8% of the private household population acted as informal carers for someone, and nearly two thirds of these were female. 

Finally we have the menopause penalty. Menopause typically occurs between the ages of 45 and 55 and for many can coincide with their peak earning capacity. One in 10 women employed during the menopause have left work due to menopause symptoms, 14% reduced their hours at work and 8% decided against applying for promotion. These statistics attest to the detrimental impact that the menopause can have on women and their financial position.

The reason that these hurdles are relevant is that even if you are contributing a reasonable amount into your pension, which according to the Adequate Savings Index is 12% of income, if you are earning less over a lifetime this will have a significant impact over time. 

This issue is compounded by the fact that women often take less risk with their money than their male counterparts and therefore aren’t making their money work as hard as it can. There are complex reasons behind this but it is certainly a contributory factor to the problem. 

Is the pension gap shrinking?

Yes, it technically is shrinking but sadly it is doing so at such a slow rate that it isn’t really making any difference in real terms. 

I also think that the slow progress has been exacerbated by the Covid pandemic which on the whole hasn’t helped women’s progression in the workplace. 

What can be done to bridge the gap?

We need to get talking – about finance! Women are great at chatting and talking but we don’t seem to be so good at discussing finances, pensions and investments. My view is that knowledge is power and you don’t know what you don’t know so we need to get the word out there. As women, we can’t change biology but if we are aware of the issues we face along our financial journeys we can hopefully mitigate them at least to an extent. As a company and as an industry I believe we have a responsibility to educate people and try and change things. At Quilter Cheviot we are passionate about doing this and the more investment managers, advisers and clients we can get the message out to the better.