Other social changes are occurring more quietly, but they are no less revolutionary.
More than 60% of UK assets will be in female hands by 2025, according to a forecast by the Centre for Business and Economic Research. This means that older women especially will have to engage in more financial planning.
Several factors are contributing to this shift. There are twice as many women as men aged 90 years or older, for example, and divorce rates among those in retirement, so-called silver splitters, are rising even as the total number of divorces falls. This often leads to older women assuming greater financial responsibility at a stage in life when many look to make things less complicated.
Among the myriad of issues older women might face, two stand out.
The most pressing is usually how to generate retirement income. In the past, there might have been a spousal pension income to inherit, together with a share of their partner’s state pension. These days, a pension is more likely to take the form of a lump sum from which cash is withdrawn. This puts far more onus on individuals to ensure that they don’t live beyond their means.
For all its faults, it’s worth remembering the 4% rule — which involves withdrawing 4% of your nest egg in your first year of retirement and increasing the drawdown in line with inflation thereafter. Many advisers today, however, consider this to be on the high side. It also presupposes that 50% of your fund is exposed to the stock market.
The second issue is that the default advice regarding UK inheritance tax (IHT) is that all assets should be passed to the surviving spouse after one’s death. This is because a widow, or widower, can inherit their partner’s estate entirely free of inheritance tax and also assume their IHT allowances. Yet although this is tax efficient, it imposes a significant management burden upon an often elderly partner.
For younger women, the financial challenges can be very different. Imbalances in earnings are beginning to be addressed by women’s stronger academic performance. In the UK, women today are 35% more likely to apply to university than men and, according to the country’s Joint Council for Qualifications, 46.4% of girls achieved A* or A grades at A-level in 2021 compared with just 41.7% for boys.
Women also tend to make better investors, but they are drawn to more conservative savings vehicles, such as deposit accounts and cash Individual Savings Accounts (ISAs). While useful for short-term savings and emergency funds, such products are unsuitable for building wealth over the longer term.
Historically, women have opened six times more cash ISAs than ISAs that allow investment in stocks and shares; meanwhile, men are 25% more likely to invest in stocks and shares ISAs than women. Helena Morrissey, the chair of financial platform AJ Bell, once described this preference for conservative savings accounts as being “recklessly cautious.”
As a rule, the longer your investment horizon, the greater your exposure should be to stocks and funds. So, for younger women investing for their retirement, it’s appropriate to have a significant exposure to the stock market. There is plenty of time for suitably diversified investments to recover from any intervening market volatility.
A big issue for men and women alike, however, is which investment funds to choose. The investment platform Hargreaves Lansdown alone offers more than 3,000 funds. The variety can be overwhelming to the point of paralysis. Faced with so much choice, many novice investors choose to avoid the problem altogether.
While a financial adviser can help with this issue, there are cheaper options. Many online brokerages offer what’s called robo advice. A short survey determines your investment objectives and risk appetite and suggests a selection of suitable, low-cost funds. For most people, simply getting started with investing is of far greater importance than what precisely they invest in, especially if the alternative is lengthy procrastination.
Full-blooded financial advice is essential for more complex issues, though, especially for people, typically women, suddenly finding themselves inheriting sole control of assets previously managed by their partner.
Many financial advisers acknowledge that their traditionally male industry has a problem with how it communicates with women. Advisory firm Schroders commissioned a report that came up with several specific recommendations. The most basic is to involve spouses in the conversation from the outset and to take time to understand a woman’s story and her support infrastructure.
At a broader level, the industry would benefit from bringing more women on board as advisers. Although the situation is slowly improving, the Personal Finance Society estimates that only 22% of the UK’s chartered financial planners are women.
The Euros is but one demonstration of how, with sufficient support and application, change can occur quicker than people might expect. The world of finance has some serious catching up to do to reflect women’s growing wealth.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Stuart Trow is co-host of “Money, Money, Money” on Switch Radio and author of “The Bluffer’s Guide to Economics.” Previously, he was a strategist at the European Bank for Reconstruction and Development.
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