On average a 60 year old woman’s pension pot is only one third the value of a man’s the same age1. Worrying isn’t it? There are myriad reasons why women aren’t saving enough for retirement; lower salaries, more part-time jobs, time out caring for children and family, lack of financial education, time and confidence.
It’s easy to relate to this. Life is busy and it’s easy to put retirement planning in the ‘too difficult’ box. After all, it is years away right? Wrong. Women are missing out on saving for a comfortable retirement. That’s why it’s so important that research, like the WealthiHer Report, shines a light on the problem and encourages conversations to help women educate themselves and the next generation.
Meeting financial needs now and saving for the future is a balance. Below I’ve given a few tips that will be useful for anyone thinking about saving for retirement:
Start early! The earlier you start to save the better. It is easy to start a pension online and stakeholder pensions are a great option. A stakeholder pension is designed for those just starting to save; the amount you pay is flexible and typically starts from £20 a month. You can view the pension online and the charges are capped.
Make it a habit – set up a regular savings amount that comes out of your account each month on or just after payday. Try to prioritise saving as you would other expenses. Make the amount realistic and affordable as part of your monthly budget. If your circumstances change for better or worse, review the amount you save and flex it accordingly but try not to break the habit.
Educate yourself – if you can, talk to a financial planner to build a bespoke plan for your retirement. There is a wealth of resource provided online by the Government, professional advice firms and pension providers to increase your knowledge. The Government MoneyHelper website is a good place to start www.moneyhelper.org.uk. For those who aren’t as keen on reading articles - many firms have You Tube channels with short, jargon free videos explaining key concepts.
Think about how much money you will need in retirement – what does retirement look like to you? Think about how much you spend now, deduct costs that might end when you retire for example your mortgage, travelling to work, childcare or education costs, and think about any savings you could make to household bills. The new amount is a starting figure for the income you’ll need each month. There are many online calculators that you can use to find out how much you need to save to provide you with that income in retirement. If the amount you need to save isn’t realistic you might start thinking about other options like downsizing your home or equity release to help meet your needs.
You don’t have to use a pension fund to save for your retirement – the big downside to a pension is that you can’t access the money until age 55 (this is increasing to age 58 from 2028) which puts some people off. Think about using an ISA as an alternative. An ISA is another tax efficient way to save for retirement but if you need the money you can make a withdrawal whenever you like. Having access to your savings can be tempting but it is also reassuring that, if your circumstances change, you can access money. If you can, get the best of both worlds, and split your savings between a pension and ISA.
Don’t opt out of your workplace pension – it’s like turning down free money! By law, your employer has to make a minimum contribution into your pension. Many employers go further and offer to match your contributions up to a fixed amount.
The government gives you tax relief – you pay income tax on the money you earn at 20%, 40% or 45%, if you contribute some of that into a pension you no longer have to pay tax on it, the Government return the tax to you by making a payment into your pension. If you want to contribute £100 into your pension you actually only need to pay £80 and the balance of £20 is paid by the Government. If you pay income tax at higher rates the benefit is even greater.
Keep contributing whilst you’re not working – if you take a career break you can still contribute into your pension. The amount is limited to £2,880 each year but with tax relief is topped-up by the government to £3,600. If you cannot afford to contribute, a third party can contribute on your behalf – a partner, spouse, parent or grandparent. Don’t forget that you can also save £20,000 into an ISA each year regardless of whether you are earning or not.
Find out about your State Pension entitlement – many people are surprised to find out that their State pension might not start until their late 60s. You can find out when you State Pension will start and get a forecast of how much you might receive here www.gov.uk/check-state-pension. You can also check whether you are entitled to State Pension credits for periods when you weren’t working or make voluntary contributions to boost your State Pension.
Your pension can provide for your family if you die – the main aim of your pension is to provide an income in retirement. However, should you die before retiring, your pension fund can provide a financial benefit for your family. Typically, the fund that you have built-up can be returned to your family to help safeguard their financial future.
1 WealthiHer Report “The Changing Faces of Women’s Wealth”
Investing puts your capital at risk.