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The solution to women achieving long-term financial well-being, regardless of their socio-economic background, is not only attainable, but the problems hindering them are surmountable. Gender inequalities in old age can be reduced significantly if women begin financial planning early on, thus improving their financial capability and reducing the disparity of a gender pension gap in retirement. Financial capability equips the individual to make positive financial decisions throughout their life course and is a combination of financial knowledge, skill, attitude, and behavior, which improves their overall financial well-being. However, there is a range of influencing factors that have a negative, compounding effect on women’s financial capability and erode their ability to circumnavigate periods of financial difficulty. This essay will discuss what those difficulties are and the extent to which it is helpful to start retirement planning at a young age compared to the reality of being a woman in society.

One school of thought is that inequalities in financial well-being are exacerbated in old age due to the accumulation of disadvantages and discrimination women experience throughout their life cycles. Women face financial challenges from the beginning of their working life when they are paid 8.9% less in full-time employment than their male counterparts, increasing to 11% by the time they reach their forties, according to Francis-Devine (2020). The transition from full-time education to a working environment is a critical period in a young woman’s life as it is when they start to develop a set of behaviors, necessitating self-discipline and control, to manage their income and plan. But this is also a time when immediate spending needs tend to take precedence over building financial resilience to cope with economic shocks. In order to aggregate wealth to provide sufficient future financial security Prabhaka (2019) advocates utilizing investments and insurance with any ‘spare’ money as a means of achieving what many deem a low-priority goal of building financial resources. If young women were to heed this advice and exert individual agency, making minor trade-offs between their overall well-being and financial well-being, it could potentially give them an early financial advantage and enable them to evade poverty in old age.

Gender norms dictate that women are the predominant caregivers of children or elderly relatives, rather than men, and this can only be rectified if the state intervenes. A lack of institutional support during this period when women choose not to be in employment is instrumental in perpetuating a woman’s reduced capacity to build financial wealth. Financial pressures, such as an immediate loss of earnings, eroded savings, and a reduction in pension contributions, coupled with the faltering career progression on returning to work, are instrumental in shaping potential outcomes for women regarding their lifetime earnings as well as their pension savings. According to a report by the Government Equalities Office (2019), women undertake 60% more unpaid work than men, reinforcing these social and gender norms. State intervention could mean targeting schools, for example, to remove gender imbalance in education so that educational choice is not limited by gender norms. This would reduce industrial and occupational segregation bought about by gender norms and improve women’s ability to take on caring responsibilities without being penalized or having to work below their skills level upon returning to the workplace. Compensation measures should also be available – for both women and men – to prevent a deficit in annual savings during legitimate career breaks.

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It has been suggested that a combination of behavioral traits and snap decision-making allows individuals and households to be exploited by financial institutions, and only with indirect state intervention should their ability to make financial decisions themselves be removed. Bounded rationality gives rise to behavioral traits, like inertia (an inclination not to tackle complex financial products) or myopia (a short-term focus on overvaluing the reward received today). In fact, women struggle to overcome behavioral traits more than men because they lack confidence in their financial knowledge, according to an article by Jenkins and Barret (2021). This could account for the widening financial literacy gender gap. One way of mitigating behavioral traits that impede saving for old age is via ‘behavioral nudges’. In 2012, the government brought in a new law that made all employers responsible for enrolling their employees into a company pension scheme (GOV.UK, 2012), thus nudging the individual towards an optimal financial choice, setting up a provision for retirement at the early stage of an employee’s lifecycle, and removing negative external factors. As a result of government intervention women not only make a monthly pension contribution from their salaries but also receive tax relief on those contributions and a monthly payment into their pension from their employer. All of which bolsters their pension pot significantly by the time they reach retirement age. This undoubtedly boosts a young woman’s financial capability early on, but only if they are older than twenty-one and meet other specific criteria.

Many people believe that the government’s ‘nudge’ has had a significant effect on pension saving behavior, substantially closing the gender pension participation gap as more women than ever now have a workplace pension. Beshears et al. (2015) believe that government interventions change perceptions and help to shape financial decision-making through increased knowledge. However, a qualifying earnings trigger threshold of £10,000 in the auto-enrolment pension scheme excludes many earners in the lower percentile: primarily women. Three years after the rollout of the government’s auto-enrolment pension scheme initiative, Jeffries (2015) indicates that 32 percent of female workers did not qualify to join due to the mandatory requirements imposed on the scheme. The evidence clearly shows that although nudging women into a pension scheme earlier than perhaps they might have done if given the financial responsibility, additional methods of tightening the gap need to be found. The main drivers of differences in pension income – women typically being paid less than men, being more likely to work part-time, and taking time out to care for children or elderly relatives – are still causing a difference between men and women in the twenty-first century. This could be rectified for women in employment if both the employer and state share the role of intermediary facilitator. For example, if companies had a legal obligation to release pay ratios, it would force them into offering equal pay to women. Once on maternity leave the employer could continue to pay pension contributions to women at their pre-maternity leave salary level, reducing the shortfall during this time. Another suggestion is for the state to standardize financial products which would empower the individual and allow them to be responsible for their own financial planning. But this does little to address the pension gap issue of women in unpaid roles.

A key motivation for saving is retirement, but a woman’s life goals are temporarily foregone once she no longer generates sufficient financial wealth to pursue them. According to Stone (2019) not only do life events typically have a negative impact on a woman’s ability to save, but also fact that women are more inclined to be risk-averse in respect of savings investments. Statistically, women are more likely to be single parents, and since the pandemic there has been a percentage change of 28.89% (an increase from 45% to 58%) of working single mothers who have become ‘ineligible’ for auto-enrolment into a workplace pension (Omoigui, 2022). The alternative is a state pension. However, to mitigate the risk of women receiving thousands of pounds less than men and potentially creating a poverty trap for themselves in retirement, women should consider not only regular savings but also utilizing investment products (Stone, 2019). Savings generate interest, and the compounding rule ensures healthy annual growth, so the sooner a young woman can start saving, the more she can take advantage of it. On the other hand, poor investment performance or high inflation can erode the pension pot amount in real terms, resulting in either a smaller pension or a depletion of funds before the individual dies. Undoubtedly, it is extremely difficult for women to build a robust financial future in old age, yet they need to save regularly to successfully circumnavigate life events. Admittedly, to plan, resources need to be freed up to make any sort of investment or savings. This is certainly a significant challenge that women need to address because no matter how financially capable and well-intentioned a young woman might be at the beginning of her career path, short-term decisions have long-term effects.

To conclude, women inevitably face short-term barriers, like low pay, and social norms perpetuate the life course wage gap from which a pension is derived. Schemes to increase the individual’s responsibility for their own retirement income are, unfortunately, a paradigmatic example of how a governmental intervention policy is still based on the male breadwinner role. If young women are to be financially secure in retirement, sound financial planning is essential. However, this can only be achieved once the gender pay gap is addressed and robust financial support measures are made available to caregivers. Only then will young women be able to boost their own financial capability and close the gender retirement gap. But until that time, the reality of being a woman in a society is an upward struggle to achieve equality at work and in the home but ultimately in retirement, so the optimum solution is for young women to engage with their pension pot early on.

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