Quilter Private Client Advisors
This International Women’s Day, it is important to celebrate the great strides that have been made towards improving the financial wellbeing of women, while also recognising that there are still further steps to take to ensure women have an equal opportunity to secure their financial futures.
With the Spring Budget fast approaching, it is vital that the government has women’s finance on its radar.
Rachael Griffin, tax and financial planning expert at Quilter, explores three of the biggest financial challenges women continue to face and the steps the government must take to improve them.
Gender pension gap and the net pay anomaly:
“We are all too aware of the gender pay gap suffered by working women, but it is also vitally important to acknowledge that when those women leave work as retirees, the gap widens significantly.
“According to a recent report on the gender pensions gap, by the time women reach retirement age, on average they will have £136,800 less saved than the average man. The main drivers of this difference are already known, so it should come as little surprise that the inequalities experienced by women in their working lives translate into their retirement.
“The private pension system often amplifies these differences further. Though women currently earn less and often have more varied work patterns than their male counterparts, over a working life this can contribute to an even greater difference in pension wealth. This is primarily because more of men’s earnings qualify for pension contributions, with women being disproportionately affected by earnings thresholds and qualifying earnings limits for auto-enrolment.
“This worrying situation has not been helped by an archaic pension taxation system, which means some women have been further disadvantaged. After years of industry outcry, the government committed to addressing the inherent inequality in pension net pay schemes, which has seen over a million low-income workers – mostly women – lose out on pensions tax relief. The longstanding dithering has resulted in 1.2 million workers needing to wait until the 2025/26 tax year to see change, and the relief will only be applied to contributions made from 2024/25, meaning low earners will have forgone millions in pensions tax relief. Women are the overwhelming bearers of this injustice, accounting for approximately three quarters of the people impacted.
“Women should also be encouraged to seek professional financial advice where possible to ensure they make the best possible choices for their financial futures, and to make use of government backed support such as the Pension Wise service from MoneyHelper. After all, around 65 per cent of the UK’s wealth is set to be in the hands of women by 2025, so it is vital that they are appropriately supported.
“There are long roads ahead in terms of truly improving gender equality, much of which lies in the hands of government. The legacy of inequality will echo throughout many arenas for some time to come, and pensions are a key example.”
Child benefit and the negative impact on women’s state pensions:
“Tens of thousands of women who are not working, but whose partners earn over the child benefit threshold, are currently at risk of receiving a vastly reduced state pension.
“To receive a full state pension, you need to pay or be credited with 35 years’ of National Insurance (NI) contributions. Under the pre-2013 system, mothers automatically received NI credits when they started to receive child benefit payments. Following the introduction of new child benefit rules in 2013, parents who do not qualify for child benefit need to remember to fill in the child benefit claim form (CH2) to retain NI credits. Each year’s credit is worth up to £275 a year at state pension age.
“Despite its flaws, the government has made no effort to amend the current system which leaves very little room for error, only allowing the carer – most often women - three months’ worth of NI credits back if they forget to claim.
“What’s more, as child benefit is not means tested, if one earner in a family makes more than £50,000 a year, they must pay back 1 per cent of the Child Benefit they receive for every £100 over the threshold. However, a basic rate taxpayer can earn £50,270 before falling into the higher rate band, meaning basic rate taxpayers are currently in scope for a tax charge aimed at higher earners.
“This is yet another example of an over-complicated system disproportionately impacting women’s finances as they so often take on the bulk of caring responsibilities. Getting it wrong could mean they are left without a state pension for up to 12 years as the UK's tax system will not recognise them for NI purposes if they do not work or claim child benefit. This needs a common-sense review and at the very least a commitment to fully backdate state pension credits when people sign up late for child benefit. The government should reduce the needless complexity by moving the threshold at which point people start to pay the high-income child benefit charge to £50,271 – the rate at which someone becomes a higher rate taxpayer.”
The cost of caring:
“While things have become more equal, women still shoulder an enormous amount more caring work compared with male counterparts. Whether it is caring for elderly relatives or new members of the family, ONS figures suggest women carry out an overall average of 60 per cent more unpaid work than men. This partly feeds into why there is still a significant gender pay gap and a knock-on effect on pensions.
“Working parents looking to get back into work are faced with significant difficulties when it comes to funding childcare for their children. Women often opt not to re-enter the workforce while their children are young as the cost of childcare is just too great.
“The government has been pressed on several occasions on this issue, and as a matter of urgency must rethink how they can help more people, mothers in particular, return to work by improving the childcare vouchers system as making this work better would take a significant degree of strain off parents.
“What’s more, according to Carers UK, 58 per cent of unpaid carers in the UK are female. The government’s answer to the social care problem is currently paused, and with the cost-of-living crisis leaving carers facing immense pressure on their everyday finances, it is high time that a meaningful plan is put in place for social care to help lessen the burden for women across the country.”