3 Useful Ways For Women To Use The Windfall From An Inheritance

Knowing what to do with an inheritance can be difficult. Read about some useful ways that women can use a windfall to address unique financial challenges.

The loss of a loved one is always challenging, and while you’re grieving your finances will probably be the last thing on your mind. Nonetheless, if you receive a large inheritance you might need to decide what you’re going to do with it.

Receiving a sizeable lump sum gives you an opportunity to improve your financial situation and work towards long-term goals. It may be particularly beneficial if you’re a woman as it could help you address some of the unique financial planning challenges and imbalances you could face.

Read on to learn some of the most useful ways for women to use the windfall from an inheritance.

1. Top up your pension savings

Saving in a pension could help you build wealth for the future and secure your dream lifestyle in retirement – especially as there’s a distinct gender pension gap, with women more likely to fall behind on their retirement savings.

According to the UK government [1], the most recent data from 2018 to 2020 shows that the gender pension gap is 35%. This means that men have, on average, 35% more in uncrystallised pension savings than women at the normal minimum pension age of 55 (rising to 57 in 2028).

Government figures show that the median average amount that a man in the private sector contributed to their pension annually between 2018 and 2022 was £2,010. In comparison, the median amount that a woman contributed annually in the same period was only £1,500.

There are a few potential reasons for this disparity in pension savings. According to the Office for National Statistics [2] (ONS), the latest figures from April 2023 show that the gender pay gap is 7.7% in favour of men.

As a result, women’s pension contributions could be lower than men’s because they may be likely to earn less.

The Trades Union Congress [3] (TUC) also reports that women are seven times more likely than men to be out of work due to caring responsibilities.

This gap is even wider when women are in their 30s, with 1 in 10 out of work compared to 1 in 100 men. So women might miss out on valuable retirement saving years because they take on a disproportionate share of childcare responsibilities.

If you receive a large inheritance, you could use this to increase your retirement savings and go some way to closing the gender pension gap. You can normally pay a lump sum into your pension and you’ll benefit from tax relief at your marginal rate of Income Tax.

These funds will be invested and might grow over time. So, a one-off lump sum in your pension now could make a significant difference to your lifestyle in retirement.

Bear in mind that there is an ‘annual allowance’ for pension contributions, and if you exceed it you may trigger an additional tax charge. The annual allowance is £60,000, or 100% of your earnings if lower, in the 2024/25 tax year.

You may want to check how much of this allowance you have left before making a large contribution. If you’re likely to exceed your annual allowance with one large deposit, you could split the contribution over several tax years.

You can also carry forward unused annual allowance from the three previous tax years. So, you may be able to make a larger single deposit if you have enough allowance remaining from previous years.

Bear in mind that your annual allowance may be lower if your earnings exceed certain thresholds, or you have already flexibly accessed your pension.

2. Start investing for the future

Investing could help you grow your wealth for the future, making it easier to achieve your long-term financial goals. Unfortunately, women may be less likely to invest than men as studies show that they can lack confidence.

According to the Independent [4], 33% of women said they feel comfortable with investing, compared to 44% of men.

This may be because they don’t feel they have the necessary knowledge, as 63% of women surveyed said they wouldn’t know how to start investing.

Interestingly though, Forbes [5] reports that women’s average investment returns are 0.4% higher than men’s. So, when women do have the confidence to invest, they typically perform better than their male counterparts.

3. Take the opportunity to seek professional guidance

Despite the fact that women face unique financial planning challenges, they’re less likely than men to seek professional advice.

A survey from Canada Life [6] found that 42% of women would go to family for help first, compared with just 27% of men, who favoured money advice websites or financial advisers.

Only 27% of women said they would seek guidance from a financial adviser – but if you receive a large inheritance, it may be sensible to seek advice. A big windfall can be an opportunity to seek professional guidance and ensure you understand the taxation, investment options and any implications of your choices.

With our support, you can find ways to use your inheritance to work towards your long-term financial goals.

Get in touch

Heidi Tresadern is Wealth Planning Director at Benchmark Financial Planning, Maidstone. Heidi has over 30 years’ experience and supports all needs from starting out and building wealth, to wealth preservation for future generations and use of assets to fund long term care.

Please visit our contact page to speak with Heidi and the team.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

[1] 21.03.2024 The Gender Pensions Gap in Private Pensions UK government

[2] 21.03.2024 Gender pay gap in the UK: 2023 The Office for National Statistics (ONS)

[3] 21.03.2024 Women 7 times more likely than men to be out of work due to caring commitments Trades Union Congress (TUC)

[4] 21.03.2024 Why Women Are Better (Investors) Than Men Forbes

[5] 21.03.2024 Women less likely to feel confident about investing than men, survey finds the Independent

[6] 21.03.2024 42% of women look to family for financial advice, compared to 27% of men Canada Life