Why Women do worse than men in Kiwisaver
Kiwisaver was in the news again last week and rightly so. Given the aggregate Kiwisaver pool currently amounts to around $80 billion, is typically our second largest asset after our home and represents the sole retirement nest-egg for many of us, it should be on the front page of at least the business section every day! A few weeks ago the hot Kiwisaver topic was the Government’s proposal to increase GST on Kiwisaver manager fees which would have robbed Kiwisavers of many tens of billions of dollars by the time they retire. The proposal was withdrawn within 24 hours to be confined to the round filing tray hopefully forever. Last week the gap between male and female Kiwisaver balances and contributions was highlighted, and a couple of ideas were floated to try to address the imbalance. I think it is important to consider.
We hear a lot about the gender pay gap, but not much if anything about the gender savings gap. Disparities in savings between partners limits options and stops people making the choices that might be the best for their own, or their family’s wellbeing. The gender pay gap, although closing, is commonly estimated at around 10%. Survey results show an even bigger issue when it comes to savings: It’s estimated that the difference in savings (and investments) held by men and women ranges from 20% to 25% – interestingly much greater than the gender pay gap. For Kiwisaver, a recent study showed that on average women have balances that are 20% lower than those held by men. Further, the proportion of women with lower-than-average Kiwisaver balances is significantly higher for women than men.
The reasons for this divergence are pretty clear to me: not only are women often paid less than men, but they often take time out of the workplace to take care of children. Both are factors in lower-than-average contributions to Kiwisaver over time. To a certain degree it is also driven by women being less confident or active in making investment and financial decisions. Far too often the financial decision-making is left to one partner in a relationship and often the savings accrue in that partners name.
Many people argue that this does not matter as Kiwisaver and other savings are relationship property so therefore what belongs to one, belongs to the other. Unfortunately it does matter as having a claim on 50% of one’s partners Kiwisaver balance on settlement of separation is not a good reason to ignore investment and savings decision making or forego independence regarding same in the previous years.
Over the years I have worked for and been a shareholder and director of a number of wealth management and Kiwisaver businesses: previously Fisher Funds and Generate and now Hobson Wealth and kōura Wealth. From my involvement in each of these businesses I know that this disparity is an issue we need to and can solve. Sadly, I have seen Kiwisaver funds being used to help women leave abusive relationships and to pay lawyers bills so that they can claim what is rightfully owed to them as relationship property. Creating equality in savings and Kiwisaver allows both members of a partnership to make their own financial decisions using their own resources with the resulting financial freedom. As an industry there are lots of things that we can do to improve the gender savings gap on our own, here are a few which make sense to me:
We need to encourage more open conversations about money in relationships, to make sure that couples are open and honest about what each want with regards to savings. Couples should be able to jointly set savings goals, ensure they stay on track for those goals and most importantly make sure they both have access to the savings for when needed.
We need more women in our industry: At Hobson Wealth we simply employ great financial advisers be they male or female but we accept that we and our clients will benefit from having a greater number of female advisers in the team. Some of our clients find that their female advisers are better at explaining information which is often critical to providing confidence to people new to investing. This is consistent with research from around the world. We have an acute shortage of women in our industry, and we have very few women in senior investment roles in the New Zealand investment scene. We should encourage women at a young age in schools and universities to ensure they enter the industry and ensure we develop an industry culture that makes women able and want to stay in our industry.
Support parity savings initiatives. Last week, kōura Wealth launched a petition calling on the Government to change the Kiwisaver rules to allow Kiwisaver contributions to be shared between couples. If one partner earns less or is not working, the other partner is able to direct some of his or her contributions to the other partner. This is a very simple solution copying a successful scheme that already exists in Australia and can make a massive difference to people here in New Zealand. It is a good example of an industry proposing a tangible solution to the gender savings gap that is not reliant on Government handouts.
The savings gap is real, and it does matter. As an industry and society as a whole we can come up with real and actionable solutions to reduce the gap. No single action alone will solve the issue, but we have to move it out of the too hard basket and stop relying on Government to solve it for us or outrightly ignoring the matter.