Wealth Advisory Newsletter

Closing the gender pay gap

In South Africa, the disparity in retirement security between men and women is alarming. Despite advances in women's rights, economic challenges and systemic gender pay gaps leave women significantly disadvantaged in retirement. Women earn less, face career interruptions, and live longer, exacerbating their financial strain in later years. 

Addressing these issues is crucial for achieving gender equality and economic stability. FAnews spoke to Linda Sherlock, Executive Head: PPS Wealth and Business Development about the need to confront these disparities to ensure a fairer retirement future for women.

The gender pay gap and retirement wealth

Retirement in South Africa is stark, with only 6% able to retire comfortably, and gender disparities worsen the situation. Sherlock notes, “Women face significant economic inequalities due to the gender pay gap, cultural expectations, and socioeconomic challenges, leading to lower lifetime earnings and reduced retirement savings.”

The World Economic Forum reports that South African women earn 23% to 35% less than men for the same jobs, with StatsSA estimating a 30% overall gender pay gap. A WTW study shows South African women are expected to retire with just 71% of the wealth accumulated by men, despite living five years longer on average.

The key challenges include:

• Gender pay gap: Women earn less than men.
• Career interruptions: Caregiving roles lead to interrupted careers.
• Part-time work: Lower pay with part-time jobs.
• Occupational segregation: Overrepresentation in lower-paying industries.
• Retirement savings gap: Less savings due to lower earnings and career interruptions.
• Longevity risk: Women outlive men by about five years, with professional women living even longer.
• Financial literacy: Lower scores compared to men.
• Investment strategies: More conservative approaches leading to lower returns.

“Addressing these gaps is crucial for economic fairness, growth, and social progress,” Sherlock asserts. “Closing the pay gap and achieving pay equity ensures women can achieve financial security in retirement.”

Unique challenges for older women in retirement

Older women face unique retirement challenges, including longer life expectancy, lower lifetime earnings due to pay gaps, caregiving duties, and fewer years to save. Factors such as divorce, being the sole breadwinner, and supporting adult dependents also impact their financial stability. Traditionally viewed as household managers, women are now gaining financial independence and are expected to control much of a $30 trillion wealth transfer by 2030, significantly impacting society. “Despite this progress, many women remain underprepared for retirement due to issues like outliving spouses, lack of financial knowledge, divorce, and elderly care costs”, says Sherlock.

Impact of career interruptions

Women often take career breaks to raise children or care for family, impacting their career progression, earnings, and retirement contributions. These interruptions, especially during key earning years, reduce their retirement savings. "The principle of 'time in the market' highlights this challenge," Sherlock notes. Women are also underrepresented in senior management, with South African women in senior roles having only 62% of the retirement wealth of men. Additionally, women live about five years longer than men, requiring more retirement funds. Financial advisers are crucial in empowering women, yet the 10x Retirement Reality Report shows women lag in financial wellbeing and retirement preparedness, with nearly half lacking a retirement plan and fewer having well-structured plans compared to men.

Long-term financial implications of lower earnings

According to the World Economic Forum, South African women earn 23%-35% less than men in the same roles, starting from a lower salary base and receiving smaller bonuses. This pay gap translates to less money for retirement savings.

“Lower earnings limit women's economic mobility and career advancement, perpetuating reduced financial growth,” says Sherlock. Parenthood, especially motherhood, often interrupts careers, further affecting financial stability.

The earnings disparity impacts generational wealth transfer and women's financial freedom. “Closing the gender pay gap, improving financial literacy, and supporting equal economic opportunities for women are crucial,” Sherlock emphasises.

Empowering women in financial decision-making

With women poised to control nearly $30 trillion from the Baby Boomer wealth transfer, brokers and advisers play a crucial role. Historically, women have felt less confident in managing finances due to gender biases and limited financial literacy. However, this is changing, requiring a departure from one-size-fits-all advice.

“Advisers must understand the unique needs of women in money management,” says Sherlock. McKinsey's research shows many women will lead in managing wealth, with younger, affluent women becoming more financially savvy. Nearly 38% of South African households are financially led by women, a number likely to rise given women's longer life expectancy.

Younger affluent women seek tailored financial advice. McKinsey notes that about 70% of widows switch advisers within a year of their spouse's death. Female advisers play a vital role, offering shared experiences and understanding nuances like career aspirations and family commitments.

“Women’s life stages require specific advice and solutions,” Sherlock adds. “Our industry must find flexible models to review and adjust plans at each phase.” PPS Investments' data shows a growing female cohort in middle age brackets and a decline in older male investors. Advisers must offer hyper-personalised advice to build lasting relationships with women, reflecting these demographic changes.

Tailored financial products and investment strategies

Studies have shown that when it comes to investing, women are far less confident than men. On average, women are more risk-averse than men with a focus on preservation as opposed to accumulation. It’s also important to note that women are more closely aligned with their investment and personal values as well as concepts such as “responsible investing,” which play an important role in shaping their decision-making.

It is well documented that women tend to:

• Be less open to risk.
• Conduct more research.
• Consider the broader impact of their decisions on society.
• Take measured decisions.

“Once again, the need for sound financial advice and financial empowerment is crucial to support women in achieving financial freedom,” Sherlock asserts. “A comprehensive financial plan covering investment, estate planning, and sufficient risk cover plays an integral role.”

“Investing in a well-diversified high-equity portfolio remains a sound mechanism to grow capital over the long term for retirement,” Sherlock advises. “This point should extend to their employer retirement fund portfolio selections, ensuring that both personal investment portfolios and contributions are aligned to desired outcomes.”

Ensuring gender-sensitive financial advice

“The advice given is not driven by the gender gap, but rather the outcomes or goals-based investing needed to meet the women’s needs,” Sherlock notes. 

"Financial advice should always be tailored,” Sherlock continues. “A woman having just divorced has a vastly different financial position to solve for, as does a woman-led household, or a woman supporting adult dependents, as examples.” Each of these requires unique advice and solutions. The women themselves will have to address the earning issues; however, an adviser’s role is to ensure they are empowered to do so through financial planning.

“In my experience, women are actually better equipped than men in managing money,” Sherlock observes. “Women seek counsel and guidance and take their time to make decisions, a trait that works in their favour when dealing with their finances. For our industry, seeing this financial freedom for our clients should encourage us to empower all our clients to achieve their retirement goals.”