Business

Some positive changes for the better in women’s finances

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RESEARCH reports over the years have shown that women in particular face significant challenges in saving for their retirement.

However this month, some new statistics from the Office for National Statistics (ONS) show some very positive changes for the better in women’s finances.

The figures show that, not only are parents tending to start a family later, but they are also having fewer children when they do.

For the first time, half of parents turning 30 have not yet started a family, says the ONS. Compare this to 1950, when women tended to start their family at 22.

Families are also choosing to have fewer children. The number of families having a second child has been gradually falling. Only 37 per cent of families have 2 children today, compared with 44 per cent in 1950.

This is having two positive effects on mum’s finances.

First, it reduces the negative impact of what is known as the ‘motherhood penalty’.

Traditionally women are more likely than men to take a long break from working, to take care of a new baby.

This means they have tended to miss out on the crucial years for job promotion, which has affected their pension saving ability. This break can last from five to 10 years, especially if other children follow.

This is known as the ‘gender pay gap’ and the result is that, 12 years after the arrival of a first child, a woman’s earnings are a third less than a man’s, due to the time they have taken off work (according to the Institute for Fiscal Studies).

Scottish Widows (SW), in their annual ‘Women and Retirement’ report, illustrated the effects of the pay gap on pension saving. SW worked out you would need to work 37 years longer than a man, if you wanted to play ‘catch-up’ after reaching retirement age, which is hardly practical as nobody stays in the workplace for that long.

Nowadays however, because families are having their first child later, a female executive often tends to reach a higher position in her career before taking a career break, which increases her income and improves her pension saving.

Second, raising one child to adulthood, including the cost of housing and childcare, costs a hefty £150,000, says the Child Poverty Action Group, and of course the cost of two children would be significantly more. Many families limit to one child in order to carry less of a financial burden in those years.

Smaller families will, however, put even more pressure on the state pension system than it has had to date.

It’s called ‘the dependency ratio’, the number of workers paying into the state pension via their National Insurance contributions versus the number of retired people drawing money out. The ratio is currently 3 to 1 – three paying in for each one drawing out.

As increasing longevity means more pensioners, and smaller families means less workers, the dependence ratio could fall to 1 to 1 by 2050, which could make the state pension unsustainable in its present form.

So there’s good news with a smattering of bad news for parents this week.

The bottom line, of course, is: don’t leave your retirement to chance. Come in for a chat with us today.

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or on at www.mkennedyfinancial.com