Robin Powell
By Robin Powell on June 09, 2023

The irony behind the gender pension gap

We’ve known about the gender pension gap for a long time, but only now do we finally have an official government study on it.

The report, published on 5th June, makes for sobering reading. Women’s private pension pots are typically worth 35% less than their male colleagues by the time they reach 55. (1) 

Researchers found that the gap varied for different age bands and was lowest for those in their 30s, which suggests that time off for childcare is a major factor.

The study also found a gap in pension contributions made by men and women. In 2021, about £52bn was paid into the private pensions of women eligible for automatic enrolment, compared with £62.6bn paid by men; that’s a difference of 17%.

Other factors at play

This is a big and complex subject, and it’s thought there are several reasons why women fall so far behind men in saving for retirement; it’s certainly not just down to childcare. Women are far more likely than men to take a break from work to care for an elderly relative. The ongoing pay inequality between men and women also plays a part.

Many women would prefer a female financial adviser, and yet women account for only around 16% of advisers in the UK. (2) Evidence also shows that although men and women tend to share financial decisions generally, decisions specifically about investing are made overwhelmingly by men. Women also tend to think they know less about investing and are less confident about making decisions than men. (3)

But… women make better investors than men

The irony of all this is that several academic studies have concluded that women actually make better investors than men — and that includes professional investors. A study conducted by Terrance Odean and Brad Barber at the University of California found that although men trade 45% more often than women, their average annual risk-adjusted returns are 1.4% per annum smaller. (4)

Research by the fund management company Fidelity has also found that, as investors, women receive slightly higher returns than men. (5) The company analysed the returns of 5.2 million self-directed investors in the United States between January 2011 and December 2020 and found that women outperformed their male counterparts by 0.4%.

So, why could this be? Well, there are a few contributing factors. For example, men are more prone to overconfidence. (6) Whereas women tend to be more cautious, and also less competitive. Once they’re thoroughly researched a subject and decided on a plan of action they’re often better than men at sticking to it and they are unlikely to follow the herd.

Yet it’s during periods of market volatility when individual markets can go up or down by 5% or more on a single day, that women tend to have an edge over men.

Men are more likely to react to market falls

Research by Betterment, an online wealth manager based in the US, shows that most of the time, its male and female customers behave remarkably similarly. (7) However, women are far less likely to panic when markets start to slide. They are 45% less likely than men to sign into their accounts to check how their funds are performing, and they change their asset allocation 20% less frequently.

Betterment also found that male customers were far more prone to “erratic behaviour”. For instance, men were six times more likely than women to dump all their shares or all their bonds in one go.

Again, why this could be makes for a fascinating discussion. There are those, for example, who put it down to biological differences between men and women. Scientists have demonstrated that increased testosterone levels can cause male traders to become over-confident and take on more risk, especially in stressful and competitive situations. (8)

Others would argue that psychological factors are more important than biochemical ones. Faced with a problem — any problem, not just financial uncertainty — men generally like to do something about it, to take action. Women, on the other hand, often just want to talk about it. They want support and reassurance. 

Of course, it’s easy to generalise. There are many women who make very bad investors. Similarly there are many men who are acutely aware of their behavioural biases and who’ve learned to keep their emotions in check when their friends and colleagues are baling out of shares, or indeed when they’re piling in and throwing caution to the wind.

Lessons for both men and women

But there are essential lessons that men can learn from these various studies. Yes, there are times when it’s tough not to react to what’s happening in the markets or the economy. But almost invariably, for those who have the right financial plan in place, the best course of action is to do nothing.

It’s also very important for women to pay attention to their financial wellbeing and not to shy away from investing. (9) They also need to realise that they have a valuable role to play in discussing investment-related issues with their partners. 

So don’t leave it to your other half to make investment decisions on their own. And, even if you’ve agreed between you that it’s mainly your responsibility, always consult your partner before making major changes.

This article is produced by us for Financial Advisers who may choose to share it with their clients. Timeline Planning and Timeline Portfolios do not offer direct-to-consumer products

Robin Powell is a journalist, author and editor of The Evidence-Based Investor.


Published by Robin Powell June 9, 2023
Robin Powell