COVID’s stealth march on women’s wealth

The UK is at risk of falling into a ‘gender split’ coronavirus recovery – with men getting back into the labour and savings market faster than women. This has been exacerbated by our return to lockdown since the start of the year. So, what is behind this and what can be done, asks Emma Parkes from Church House Investment Management.

Women are more vulnerable to losing their jobs during lockdowns because they work in sectors more likely to be negatively affected by coronavirus disruptions, such as hospitality, leisure and retail.

According to statistics from the Institute of Fiscal Studies, in the UK, young women in particular are overrepresented in these sectors: 36% compared with 25% of young men. Overall, 17% of women compared with 13% of men work in hospitality, leisure and retail. Added to this is the fact working mothers are more inclined to consider changing their work situation in response to a situation like the pandemic.

The gulf widens

Combine these short-term responses with longstanding social norms and it’s easy to see a situation where greater inequalities could lead to a widening of the pre-existing gender gap.

Already, by the time women hit retirement, chances are their pensions and savings fall well short of their male counterparts. This is otherwise known as the ‘Gender Pension Gap’. In 2018-19 research from Prospect showed the gender pension gap was 40.3%. (This was more than twice the level of the gender pay gap that year, at 17.3%.)

If women are now even more short on time, and possibly reducing their income, the gulf in saving potential widens.

In short, decisions made in response to a “once-in-a-lifetime-event”, if left unremedied, will have an impact that far outlasts 2020.

What can women do?

Having established the issue, and why it matters to longer-term financial objectives, let’s turn to problem solving:

1. Review your financial position

Review where you are exposed to income deficits or risk. If you have an investment manager, update them with your situation and discuss whether the mandates for your investment portfolio should be changed in terms of priorities and risk.

If you do not invest and have a cash surplus, investment should be considered. Leaving surplus funds in cash, with interest rates on the floor, exposes you to the thief that is inflation. Cash is not risk free. A common misconception is that you need large lump sums to invest, when you can in fact save into an investment portfolio from as little as £50 a month.

2. Take control of your retirement aims

In a piece published by PensionAge, referencing research by the Pensions Policy Institute, it was revealed that the average income from private pensions for women aged 65+ is £3,920 a year, £4,700 a year less than men. Now is the time to make sure you are making the most of your pension opportunity. Speak to your pension administrator or investment manager about your options.

For those aged 55 plus who do not have an investment manager, fear not. You are entitled to free, independent and impartial pension guidance. Book in with Pension Wise who can help you make sense of your options. This free service offers guidance from a pension specialist over the phone.

3. Assess your diversification

Make sure any assets you have are diversified. Women are more likely to leave themselves over-exposed to cash, but also property. This is a huge concentration of risk. So, it’s important to remember the supposed ‘one-way bet’ on property is in no way guaranteed. Studies have shown that investing in the stock market has provided the best returns of any asset over time. It is vital women feel comfortable about exploring broader investment options.

4. Wise up on taxes

The Government has announced that in a change to usual practice, certain tax consultations and calls for evidence traditionally published on Budget Day will instead be published on 23rd March 2021, a date it is referring to as “Tax Day”. This will signal long-term Government tax policy for the next 10 years, according to tax experts, including reviews of capital gains and environmental levies. This is required to strengthen the economy and the British tax system, helping the Government to claw back some of the surge in its spending as a result of the pandemic.

Whilst nothing concrete has been announced, it would be wise to review exposure to some obvious long-term reform candidates and maximise this year’s allowances where possible.

CGT – the allowance for individuals has been frozen at the current level of £12,300 until April 2026. With house prices increasing, and investment portfolios participating well in the market recovery, this is something that owners of buy-to-let property or direct stock investments should be mindful of.

Income Tax – The personal allowance and higher rate threshold have risen to £12,570 and £50,270 for 2021/22, and again, these will be frozen for the next four years. Income tax exposure can be reduced by maximising the use of ISAs and pension contributions and marriage/civil partner’s transferable allowance of £1,260.

Inheritance Tax (IHT) – the Nil Rate Band (NRB), allows a person to pass on up to £500,000 worth of assets untaxed, including £175,000 allowance on their main residence. This was unchanged in last week’s budget. Again, with house prices rising, many will find themselves with an estate over the full NRB on their house alone, meaning their successors are left with a 40% tax bill to cover. Women should address succession planning sooner rather than later.

5. Succession planning

To expand on my IHT point, a well-structured succession plan would help to mitigate the effect of IHT, and potentially avoid increases to Capital Gains Tax and Income Tax liabilities. For children under the age of 16, you can contribute £9,000 per year into Junior ISAs, which roll up free from income and capital gains taxes. This is a great way to help them provision for university expenses or a house deposit. From 16, children are entitled to the full £20,000 annual allowance for Cash ISAs.

Opening a Self-Invested Personal Pension for a child is another option. You can contribute £2,880 per annum on their behalf, which then attracts a tax reclaim of £720 per annum. A nice return, before any growth.

Bare Trusts could also be worth looking into. The investments here are not held in the child’s own name but are taxed as if they belong to them. A review of both the recipient and donor’s tax position should be done on a case-by-case basis.

Finally, gifts fall out of your Estate after 7 years for IHT purposes, so it is important to keep records of any gifting done.

These unprecedented times have thrown up many challenges and few of us will escape without any impact. For women, the issues above are very real but hopefully, you can take encouragement from the actions shared in this piece. By being pro-active you can take an important step towards financial wellbeing.

Important information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance. Church House Investment Management is a trading name of Church House Investments Limited, which is authorised and regulated by the Financial Conduct Authority.