Retirement income is the last thing on most mothers’ minds as they struggle
with the demands of bringing up young children. Yet millions of women face
an impoverished old age as career breaks and low pay mean that they do not
put enough aside to provide an adequate pension.
Recent research by Prudential indicates that about 60 per cent of working-age
women do not contribute to a company or personal pension – and that those
who do put away about a fifth less than men. This means that the average
female pension saver, who contributes £236.54 a month, can expect her
private pot to generate an income of only £3,603 a year.
The Women and Work Commission says that lower pay is largely to blame for this
pensions “gender gap”, with full-time male workers earning 23 per cent more
an hour. The gulf is also a result of the tendency for women to sacrifice
their pension contributions when they start a family.
John Dunn, technical manager at James Hay, the pensions specialist, says:
“Often, when a couple go down to one income and look at what they can cut
back on, the woman’s pension is the first thing to go.”
However, women can avoid pension penury. By law, a pregnant woman who has
clocked up 26 weeks of service within 14 weeks of her due date is entitled
to 39 weeks’ pay – and for full pension contributions from her employer. To
qualify, however, she must maintain her minimum contribution.
But experts urge women to push for more than the minimum. John Lawson, head of
pensions policy at Standard Life, says: “Many employers keen to retain
female staff offer more than the statutory minimum maternity benefits. You
could try bargaining for more.”
Mr Lawson also reminds mothers who take a break from saving for their
retirement that their partners can contribute up to £3,600 gross a year into
a pension on their behalf.
But even if contributions at this level are too costly, he advises women who
stop earning to continue some form of pension payment. “Do everything you
can to avoid losing the pension habit,” he says. “The power of compound
growth on your savings over the years means that even modest contributions
can make a difference to your retirement pot.”
Advisers also caution women opting to have children later in their career –
when they are likely to be putting away more for their pension – that
stopping contributions can have a significant impact on retirement income.
Mr Dunn says: “A woman aged 40 paying £600 a month into her pension could
suffer a £39,000 reduction in her fund if she takes a year off
contributions.”
He says that such high-earning older mothers can avoid any nasty shocks by
making overpayments when they resume contributions.
Women unwilling or unable to rely on their partners to make contributions for
them could consider building up a savings fund – perhaps within an Isa – to
drip-feed into a pension if later they take an extended break.
Katie Parker, a financial planner at Helm Godfrey, says: “When you put cash in
your pension it’s locked away until retirement. If you have it in an Isa,
you have the flexibility to withdraw it for short-term costs if you need to
and to use the fund to boost your pension.”
However, while returns on Isas are tax-free, they are overshadowed by the tax
relief on pension contributions, Mr Dunn says. If you have other savings
pots to call on in emergencies, it could be best simply to put new cash
destined for retirement savings straight into your pension.
Women coming up to retirement now can still boost their income by maximising
their state provision (see box below) and shopping around for an annuity
through companies such as Annuity Direct (0500 506575,
www.annuitydirect.co.uk). This can be good advice for men too, but many
women are under more pressure to extract every penny of income they can for
their pensions.
At the other end of life’s spectrum, Mr Lawson says that parents hoping to
steer their daughters well clear of “the pensions’ underclass” should start
paying into a pension for them as soon as they are born.
Making the most of state help
THE home responsibilities protection (HRP) scheme reduces the number of years
of national insurance contributions (NICs) you need to have notched up to
qualify for a full state pension. It applies if you do not pay NICs because
you do not work, or your earnings are low because you care for a child or a
sick or disabled person.
Women should check that they are receiving their full entitlement under HRP,
after a Times Money investigation revealed that about 500,000 are
owed at least £1 billion because of bungles by the Pensions Service. If you
are over 60 or within four months of retirement, contact the service on 0845
6060265.
Under the state second pension (S2P) framework, mothers receive a year’s worth
of state pension based on earnings of £13,000 for every year that they look
after a child until he or she reaches 6. Even if you have one child, this
benefit could be worth about £392 a year. Contact the Pensions Service if
you are unsure about your entitlement.
If you have modest retirement savings, and you or your partner are 65 or over,
you could be eligible for a weekly state pension top-up of up to £25. Many
eligible pensioners are not claiming the credit owed to them. To apply, call
0800 991234. For advice on applying, call Help the Aged on 0808 800656, or
visit www.helptheaged.org.uk .
CASE STUDY "What am I missing out on “WHAT AM I MISSING OUT ON?”
ELIZABETH SIMS, a 41-year-old NHS nursery nurse, understands how easy it is
for pensions to fall to the bottom of the list for women, especially when
they have a budding career and a child under 5 to look after. “On
reflection, I wish there was time to do more planning,” she says.
Mrs Sims, of Uphall, West Lothian, is about to embark on a new career as a
registered childminder before her daughter, Connie, starts school next
month. She kept her pension contributions going throughout her maternity
leave, but has made none since leaving employment in March.
She is married to Paul, a 36-year-old graphic designer, and has given herself
a deadline of this Christmas to resume her pension saving.
She says: “Up to now I have not had time to think properly about whether or
not Paul might contribute to a pension for me, or how taking a break from
making contributions will affect what I retire on.
“But now that I am getting my business up and running, it has really prompted
me to start to think more seriously about the need to take responsibility
for looking after my own financial future and to ask myself some hard
questions about what I might be missing out on by not having contributed
anything to my pension for all these months.”
It’s never too soon to save for your old age
Why should I save into a pension? Savings are crucial for a comfortable
retirement. While any savings are better than none, tax relief on pensions
means your money goes further. The Government adds 22 per cent to your
contributions so, if you pay £78 into your pension pot, it will top it up to
£100. Higher-rate taxpayers can claim back a further 18 per cent on their
tax return.
What do I do first? Decide which type of plan you want. If you work,
you may be able to join a company scheme. Alternatively, you can choose
between different types of individual pension.
What is a company scheme? Most employers offer money purchase pension
schemes. If you join, you pay into the scheme each month through your
paypacket. They are an attractive option as many employers top up your
contributions. However, you must check this out as some smaller companies
will not pay anything.
What are the other options? If you can’t join a company scheme, or if
you want to make additional savings, then an individual pension is the
answer. You can have a traditional personal pension, which allows you a wide
range of choices as to where your money is invested.
Or you can decide on a cheaper stakeholder pension. The annual charges here
are capped at 1.5 per cent, although some pension providers charge only 1
per cent. Alternatively, you can opt for a self-invested personal pension
(Sipp), which allows you to invest your pension savings in a much wider
range of investments.
How do I set up a pension? If you want to join your company scheme,
contact the scheme administrator – the human resources department should
point you in the right direction. Personal pensions are offered by most
insurers, such as Standard Life and Prudential, but see an independent
financial adviser before you decide.
How much should I contribute? Hargreaves Lansdown, the IFA, advises
dividing your age by two and contributing that amount as a percentage of
your salary into a pension scheme. For example, if you’re aged 30, consider
putting in at least 15 per cent of your salary. This may sound like a hefty
sum, but to receive an income of £20,000 a year, a 65-year-old woman needs a
pension pot of £452,000. The maximum contribution on which you can claim tax
relief is 100 per cent of your income or £225,000 a year – whichever is the
lower amount.
The government maybe tops-up your pension contributions through the tax system, but it will take most of that back in tax charges once you retire. Answer - simple, put your precious savings into a reasonably safe ISA each year ! This way you can always get at your savings anytime and you will not be ripped off by the Pensions Industry as I was through my Company pension. The government will top up your income through pension credit if you haven't enough money to live on !! Be warned !
John Fisher, Edinburgh, Scotland