How To Be Pension Confident With Romi Savova
Saving for retirement can feel like a distant goal, with pensions often feeling complicated and impersonal.
But with research finding that by the time a woman is aged 65 to 69, her average pension wealth is roughly a fifth of that of a man the same age (Chartered Institute of Insurance 2018), saving for your pension can be vital for a happy retirement.
We know the gender pay gap is negatively impacting women throughout their career, with this disparity also affecting how much we can save, so how can we address the gender pension gap and ensure that this inequality does not persist?
In this episode of The Wallet, we are joined by Romi Savova, the founder and CEO of PensionBee - the leading online pension manager giving customers ownership of their savings, encouraging them to actively interact with their pension pot through a unique combination of technology and customer-centric service.
In this episode, Romi shares how we can better understand our pension plans, the importance of financially planning for later life and how to get started saving.
It’s also a very exciting time for Romi as she gears up for PensionBee’s upcoming IPO. With only 5% of the FTSE 100 CEOs being female (IG Group, 2020) we take a look at Romi’s experience as a female founder working in the financial space and how her organisation has achieved complete gender parity. 💕
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1. the gender pension gap
“If you think about your pension as your salary for later life, you realise that you need to be generating a salary from your savings because you won’t be working. That is the fundamental problem we are trying to solve here: how will you create your salary for later life?”
Over fifty years after the Equal Pay Act came into effect in the UK, we observe that a 15.9% gender pay gap still exists (Gov UK, 2020). Yet, gender income disparity does not stop here; research conducted by the Chartered Institute of Insurance (2018) found that, by the time a woman is aged 65 to 69, her average pension wealth is £35,7000 – roughly a fifth of that of a man her age. Indeed, a recent report by the trade union Prospect (2018) confirmed that the gender pensions income gap was more than double the size of the total gender pay gap, with the average female pensioner £7,000 per annum poorer their male equivalent. In a society where women live longer and face widespread retirement poverty, it is crucial that we address the gender pension gap and take action to close it.
Why save for a pension anyway?
The full Basic State Pension for those reaching state pension age from the 6th of April 2016 in the UK is currently only £175.20 per week. When you consider that the poverty line in the UK is defined as a household income below 60% of the average, which is around £195.00 per week, it is clear that the State Pension alone fails to support a comfortable standard of living in retirement. It is for this reason, Romi explains, that saving towards a pension is so important: it is about taking care of your future self by providing yourself with a reasonable salary to live on in later life.
In addition, there are many other financial incentives to save towards a private pension, including:
Benefitting from free employer pension contributions
Qualifying for tax relief on your pension contributions
Claiming a tax-free cash sum on your retirement
Providing a form of life assurance for your dependants since many private pension schemes will pay out a lump sum in the event of your death
How much should I be saving towards my pension?
It can be difficult to understand how much money we should put towards our pension, however, as a general rule, Romi advocates that people should target roughly 15% of their annual income, since this will be conducive to creating a comfortable income during retirement. She acknowledges that for many this is still a sizable gap to close. Although a worthy target, you do not have to reach it straight away but rather work towards it, understand how much money you have already invested into your pension and calculate how much more you will need for retirement.
What are the gender pension gap causes?
Gender pension gap inequality is the result of the unequal accrual of pension contributions over the span of women and men’s careers. Recent studies have highlighted that the single biggest driver behind the gender pension gap is the gender pay gap. Because the amount people save for a pension is usually a percentage of their salary, a 15% gender pay gap directly translates into a 15% pension gap all other things equal. In addition, a lower salary results in a slower repayment of student debt by women, which means that women typically start saving for their pension later.
The gender pay gap is largely a product of changes in women’s working patterns as we are more likely to spend an increased amount of time out of the labour market to care for children and other family members. The gender pay gap grows once women either voluntarily or involuntarily reduce their work commitment to fulfil caring roles, finding that their earnings grow at a much slower rate than that of comparable men. Career breaks due to caring responsibilities add the further complication of reducing your State Pension benefits since the amount of State Pension you receive is largely based on how many years you have worked for or National Insurance credits you have received during your time off work.
And just to throw another spanner in the works, women are less likely to provide for their old age through a pension because of a lack of trust and understanding when it comes to the investment industry: over one in ten women do not feel comfortable choosing financial products and services – twice as many as men (Fidelity, 2018). The information and paperwork required to comprehend pensions can end up being a significant barrier for women because women tend to want to more thoroughly understand a financial product before investing than men.
How can we bridge the gender pension gap?
Bridging the gender pensions gap requires significant proactive efforts from a number of groups in society. Firstly, at the government level, pensions policy can be leveraged to ensure that this inequality does not persist into the future through reforms to the state pension entitlement. As investors and consumers, we can vote with our wallet and refuse to engage with companies that have poor gender pay gap data and a lack of senior female leadership. Romi explains that there are that women can take to boost their retirement earnings. Given that the gender pay gap tends to be smaller for women in their 20s and early 30s, the Fidelity International report, ‘The Financial Power of Women’, reveals that women could bridge the gender pension gap by dedicating an additional 1% of their salary towards their pension during these early years. Remember, do not fall into the trap of thinking that, because you are on a low salary now, you should wait to contribute towards your pension later. Even the smallest contributions set aside during the early years of your career have the change to grow into substantial retirement savings through the power of compound interest. It is also important to exploit opportune moments to close the gender pension gap, for example if you are self-employed and get a large invoice or receive an inheritance, you should transfer this lump sum into your pension.
Other tips for re-balancing the gender pension gap are:
Opting back into a workplace pension if you have opted out
Check to see if you are eligible for National Insurance credit for the State Pension
Check your National Insurance record to see if you will get the full State Pension when you retire
Keep pensions at the forefront of your mind when splitting assets in the event of a divorce
Factor in the cost of making contribution payments when family planning
2. initial public offering(‘ipo’)
It is likely that you have heard the term ‘IPO’ before, but what does it mean? IPO stands for Initial Public Offering, which is the process through which a privately held company offers shares to the public (institutional investors and people like you and me). Following an IPO, a company will begin to trade on a stock exchange, such as the London Stock Exchange or the New York Stock Exchange. Any privately held company can undergo an IPO, ranging from high-growth start-ups often initially funded by angel investors and venture capitalists to mature companies held by private equity firms seeking a return on their investment.
Before a company is ready to go public, it must have a track record of impressive growth and favourable financials. The company will hire several investment banks from the pre-launch through to the execution phase of the IPO to organise meetings with potential investors and to underwrite the IPO. The investment banks hired by the company work closely together with the company’s management team to prepare a valuation for the company. The investment banks will also perform due diligence on the IPO company to verify its financial information. The company will file a prospectus which provides detailed information on areas of interest to potential investors, such as its financials, results, business model and growth opportunities. The company will then go on an IPO roadshow to calculate how many shares and at what price to sell to different groups of investors. When an initial number of shares have been sold or subscribed through this process, the company and its underwriters will set an initial price and date for the stock to begin trading. On the first day of trading, the company stock will be available to the public on the stock exchange as the underwriting investment banks sell shares. On the opening day, it is common for the company’s shares to fluctuate significantly in price and, because the underwriting investment banks prefer a stable performance in the first few days of trading, the investment banks responsible will make a stabilisation effort to support the share price.
Romi shares that the primary benefit of going public through the IPO process is easier access to capital through which PensionBee’s business can have greater global impact and reach. The money PensionBee could raise through a prospective IPO could be used to expand its digital pension platform and extend its customer base. The opportunity to raise capital for PensionBee’s exceptionally high growth business is crucial for its prospects, with the prospective listing creating the ability to accelerate the growth of the business even further. Romi explains that, given the high level of transparency that exists in PensionBee, the typical drawbacks of higher scrutiny resulting from going public do not apply to her business, in fact she welcomes sharing PensionBee’s financial results with the public.
3. customer centricity: The foundation of a successful business
One of the core lessons that Romi has taken away from the inception of PensionBee to its prospective IPO is that successful companies always put their customers first. A customer centric philosophy, therefore, is at the heart of PensionBee’s strategy, creating a long-lasting foundation for business prosperity. Customer centricity is an approach used by companies to do business in such a way that strong customer relationships are forged via the creation of positive customer experiences and the maximisation of the company’s product and service offerings in the context of customers’ ‘jobs-to-be-done’. PensionBee strives to ensure its customers’ utmost satisfaction through its five core values: love, honesty, quality, simplicity and innovation. Romi explains that, for PensionBee, customer centricity is about making real pension products with their customers in mind and taking feedback on board when innovating new products. For example by matching each customer with a personal ‘BeeKeeper’ to support them throughout their pension journey, PensionBee operationalises customer empathy through identifying the emotional, stressful and complicated process of setting up a pension and responds with an easy-to-use solution. Indeed, Romi, having spent her career in corporate finance at various bulge bracket firms, founded PensionBee in response to her difficulty of moving her pension across organisations. PensionBee overcomes this issue by committing to making pensions less complex through avoiding confusing jargon and providing continual customer support, building trust through the transparency associated with one fair and clear annual fee for the service. By doing well by your customers, your company will grow through high customer satisfaction levels and a high net promoter score, creating a virtuous cycle of raising capital and growth.
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You can listen (34 min) and subscribe here:
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Resources:
You can follow and connect with Romi at:
PensionBee: https:/www.pensionbee.com
Twitter: @romisavova
We shared some resources in this episode. All the links are below: