In April 2023, the pay among full time employees was 7.7% lower for women than men. This difference in earnings means that men and women start their wealth journeys at different levels, which may mean that women need to save more in order to achieve similar outcomes in retirement. It is crucial to start your wealth journey early and plan ahead. No matter your personal circumstances, you can benefit from structuring your assets in such a way that is tax efficient and will put you in a good financial position over the long term.
The first step is understanding your financial goals and determining the appropriate investment approach to meet them. Prioritising each of your financial objectives can help determine the appropriate level of risk that you should be taking, alongside your level of comfort with risk, which will help you make good, informed choices. As you move through life and your objectives evolve, the asset allocation of your portfolio can be amended to suit you. Women are often more hesitant to move cash savings into the investment market, where their money will work harder for them, and therefore, women may be more at risk of their assets being eroded by inflation. Taking sensible risk to meet long-term goals should be considered and discussed at length with a financial adviser.
Given women’s life expectancy is generally higher than that of men, it is important to ensure income in retirement can be sustained for a longer period of time. Although it is hard to predict how long funds will last, and some assumptions must be used, cashflow modelling can be used to help illustrate financial scenarios, which can be used to plan for different outcomes. If you have a partner, sit down with them and understand your family’s finances. Ensure your goals and how you are working together to achieve them are aligned.
Plan for the unexpected. In the event your partner predeceases you, the last thing you want to worry about is your finances. Set up Wills and Powers of Attorney now and have less to think about in the future. By reviewing and suitably arranging your financial affairs early, you are prompting open and honest discussion with loved ones, which will be beneficial in the long term.
An estimated 20 million people have lost touch with their financial providers. This includes £37 billion lost in pensions. Taking stock of your current financial situation includes reviewing your pension plans, savings, and other investments that you have accumulated over your lifetime. Take time to gather information on previous investment providers you have used, and ensure you are not losing assets in your name due to poor administration. One place to start is pension consolidation. This can be a very useful exercise, as you may find old pension pots which you had forgotten about or are from previous employment. Consolidation will likely reduce your overall administration and potentially reduce the cost. It can help you assess your risk appetite, capacity for loss and enable you to focus on your financial objectives.
Women more often than men take time out of work to raise their families, which can lead to potentially broken or halted years of pension accumulation. It can be hard to make up the years, but understanding how much you are able to contribute each year, and the tax benefits of doing so, is crucial.
Emphasis should be placed on building savings and bridging any gaps. The days of defined benefit pension schemes and guaranteed income in retirement are disappearing, and we now have to save through defined contribution schemes and bear the greater responsibility for the destiny of our pensions. It is important to consider how much you need to be saving to reach your retirement goals and how your money should be invested to get there. With regard to your state pension, taking time out of work for childcare may impact your accumulation of National Insurance credits, however, you may be eligible for childcare credits. Check your state pension forecast at https://www.gov.uk/ check-state-pension, and learn how to plug any gaps in your National Insurance contributions to boost your eligibility to the full state pension.
There are various allowances, which, if affordable, should be taken advantage of each year. These include ISA allowances (£20,000), pension annual allowances (£60,000), and various tax allowances, including dividend and capital gains tax allowances. JM Finn’s Wealth Planners can help you with any of the areas mentioned in this article. They can work with you to understand your objectives and goals, and put in place the right structures to help accumulate your wealth.
Below is a checklist to provide a starting point:
• Write down your financial objectives and discuss them with a Wealth Planner.
• Speak with a solicitor about drafting/updating Wills and Powers of Attorney.
• Begin thinking about investments at the beginning of each tax year to ensure you don’t miss any deadlines.
• Speak with a Wealth Planner about utilising allowances available to you: ISAs, pensions, Capital Gains Tax.
• Check your state pension forecast and make National Insurance topups where required.
• Ensure your expression of wishes on your pension is up to date.
JM Finn's Wealth Planning team could help with any of the areas discussed in this article. If you would like further information, please contact us.
