More than 50 years after the Equal Pay Act, women, on average still earn less than men. And despite living longer, on average, than men, they are less likely to invest for their own futures. Entrenched gender differences in society explain why, but what can women do to build wealth?
Why don’t more women invest?
Women make up slightly more than half the UK population yet on average are less well-off than men, with below three-quarters of the total individual wealth of their male counterparts, according to the Office for National Statistics1. They also face more financial hurdles on average, with only 69% of women in full-time work versus 90% of men, and a persistent gender pay gap of 13.3% in 20232, wider than the 13.1% average for advanced economies. Research by accountancy firm PWC shows that for every £1 earned by a man in the UK, an equally qualified woman earns 90p on average. According to the Insuring Women’s Futures report published by the Chartered Insurance Institute, women and girls also tend to have lower participation in higher-paid apprenticeship roles and a greater tendency to study degrees with poorer job prospects, both of which act to limit earnings potential. Meanwhile, they shoulder more of the burden of caring responsibilities for children or older relatives, leading to time out of the workforce, which in turn means sacrificing career earnings and pension contributions3.
Entrenched gender differences affect life outcomes
Women tend to live longer than men – interestingly, while married men live longer than their single counterparts, the reverse is true for women4 - yet they also face greater financial insecurity because of entrenched gender differences in life outcomes. For example, men and women often pursue different academic fields, with women opting for subjects which lead to occupational segregation. All of this means women are arguably in greater need of a sensible investment plan to build their long-term wealth. However, there is a large body of research5 suggesting women’s tolerance to investment risk is less than that of men (with single women having the lowest risk appetite and single men the highest), which could threaten their ability to build a sufficient savings pot to see them through life’s challenges and provide a retirement income.
“Interest rates are coming down, and inflation remains stubbornly above the Government’s 2% target, which means a deposit account is unlikely to build long-term real returns,” says Simon Crinage, Head of Investment Trusts at J. P. Morgan Asset Management. “While past performance is no guarantee of the future, studies over many years show that investing in equities offers superior returns over the long run.”
What can women do to build financial security?
Because equity investment does carry a risk of loss (not all companies will perform well all of the time), one way of mitigating risk is to invest via a fund such as an investment trust. Investment trusts are themselves structured as companies, but each share buys the investor a stake in an underlying portfolio of companies selected by a professional investment manager to provide the best chance of achieving the fund’s objective – whether that be long-term capital growth, a regular income in the form of dividends, or a combination of the two. These days many people buy investment trusts through platforms such as interactive investor, Hargreaves Lansdown or AJ Bell, which offer the ability to invest regular small amounts if you do not have a lump sum to start with. Tax-favoured structures such as individual savings accounts (ISAs) and self-invested personal pensions (SIPPs) can help boost returns through tax exemptions or reliefs.
By investing the full ISA allowance each year since the structure was introduced in 1999, trade body The Association of Investment Companies (AIC)6 has calculated that 50 investment trusts – including ten trusts from J. P. Morgan Asset Management’s comprehensive range – would have grown the sum invested (£326,560, or a little over £1,000 a month) to more than £1m.
In a cost-of-living crisis, making such a long-term investment plan may seem unachievable, but even small regular amounts can add up to a meaningful pot over time. For women facing a longer life, a shorter time in work and perhaps with a dwindling safety net from the state (the pensionable age for women has increased from 60 for those born before 1951 to 67 for those born since 1961 and is scheduled to increase to 68 for those born from April 1977), it could be time to take matters into their own hands. The first step to reaching your retirement goals is simply getting started–because taking action today puts you on the path to a more secure future.