The future of wealth is female

With the prediction that 60% of the UK’s wealth will be in female hands by 2025, we look at the rise in female financial power.

By Garry White, Chief Investment Commentator, Charles Stanley Wealth Managers.

Women control a greater share of the UK’s wealth than ever before, with more than 60% of the UK’s assets predicted to be in female hands by 2025. This rising financial power is to be celebrated, but it is also something for which women and their wider families need to prepare.

There are numerous reasons for this structural change. It is driven by the biological fact (women outlive men so there are twice as many women aged 90 years and over in the UK) and a fact of life (42% of marriages in the UK end in divorce).

The rise in female financial power is also a result of changes in society that freed many women to succeed in areas in which they were once disadvantaged or excluded. The post-war period saw a surge in female entrepreneurship.

Although women still make up only about 15% of the world’s ultra-high net worth individuals, defined as people with net assets above $30m (£22.1m), the proportion that is part of the world’s super-rich is significantly higher in younger age brackets than the cohort as a whole.

Girls are achieving better qualifications than boys in their GCSEs and A-levels. More women than men now enter higher and further education, outperforming men as they break free from the traditional gender attitudes of previous generations.

These strict attitudes also meant it was the male role to take charge of household finances. As a result, too many women found themselves a widow without a thorough understanding of their future income, a situation compounded by the grieving process. Thankfully, this is now less common, but it is still a significant issue globally.

A 2019 study by the wealth management arm of UBS discovered that, although 85% of women control their family’s day-to-day finances, most women worldwide (58%) defer long-term financial decisions to their spouses. This lower engagement in long-term wealth planning puts the future financial security of many women at risk, particularly in widowhood.

After a period of significantly above-trend asset-price inflation in the UK in terms of investments and property, women are now inheriting sums that are likely to be significantly ahead of what they may have expected – or planned – earlier in their life.

This does not mean there is an entire generation of “merry widows” enjoying wealthy golden years and lavish lifestyles – or that women can now rest on their laurels. A study released by Age UK in September last year found that the proportion of female pensioners in the UK living below the poverty line had risen by six percentage points in less than a decade. This means that one in five female pensioners in the UK – 1.25 million people – are living below the breadline.

Whatever your age or gender, everyone wishing to prevent a significant drop in income in later life needs a financial plan today. Long-term plans need regular monitoring and updating to keep them on track as the world changes.

To deal with the financial challenges that increases in longevity have caused the pensions industry, there have been some significant changes that can impact women detrimentally in later life. Women reaching their pension age after 5 April 2016 fall under the new state pension rules. These are based on the national insurance (NI) contributions of the individual rather than on rights derived from a late spouse. There are some protestations, but women who have stayed at home to raise a family and have a limited record of NI contributions may risk being in the situation that when their partner dies, so does their pension.

The demise of DB pension schemes

Another trend that has impacted a woman’s potential income once they retire is the slow demise of generous defined-benefit (DB) pension schemes. The number of private-sector defined benefit and hybrid pension schemes and their memberships continued to fall in the 2020/21 financial year, according to The Pensions Regulator (TPR).

The number of DB and hybrid schemes has been consistently falling since TPR began its reports in 2012. Of the 5,522 schemes in operation last year, 10% were open, 38% were closed to new members, 48% were closed to future accrual and 4% were winding up. The shrinking availability of these “goldplated” schemes means that new pensioners are going to see smaller defined-benefit pension rights and need to plan accordingly. Women who will inherit DB pensions from their husbands in the future need to take account and compensate for the fact they are unlikely to be as generous in the future.

If you would like to discuss any of the themes in this article, or to find out how Charles Stanley can manage an investment portfolio on your behalf, please contact a member of the Oxford team at oxfordbranch@charles-stanley.co.uk or call 01865 987 485

www.charles-stanley.co.uk/oxford-office

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