One of the challenges facing both men and women as they reach their selected retirement age is an increased life expectancy. We’re seeing people live longer, yet generally, we still peg retirement to the ages of 60 and 65, so whatever money is saved in pensions and investments needs to last for a potentially long period of time.
The difficulty for women in particular is that their life expectancy is generally higher than men’s, so their money needs to last longer. Did you know that one in five of today's 55-year-old women will live to 110?** Also, if they are hoping to retire by the age of 60, as many women traditionally did in the past, this adds even more years to retirement that have to be funded.
The most obvious reason would be taking a career break. If a woman has taken a significant length of time out of her working career, whether it be to raise a family or care for a relative, there can be a gap in either their State or personal pension contributions. This could then set them out of line with a man who has continued to work throughout his adult life with no breaks.
Recently, we've seen a lot of women who have had a family and want to return to work looking for working arrangements that are more flexible. Many work part-time, which is likely to influence the amount they contribute to pensions. Others become self-employed, so having gone from a setup where their employer would have also contributed to their pension, they now have to make the contributions themselves. Being self-employed can allow them to put off making pension contributions, with many of them saying ‘I’ll do it next year’. Instead, they often end up either putting this money back into the business or using it to cover expenditure within the family, and the contribution is delayed for another year. Before they know it, many years have passed and the pension gap between them and their employed male counterparts is bigger than ever.
Despite not taking a break from work, we often still see that for married, heterosexual couples, the male is usually the higher earner. While there is definite progress around bridging the gender pay gap, if he is a higher-rate taxpayer and she is not, he will receive a greater amount of tax relief on any pension contributions. Therefore, it might be the case that more of the couple’s overall wealth has been invested into the man’s pension because it is more tax-efficient to do so. This can then lead to his wife having a significantly lower pension value by comparison. This approach is common.
Involvement from an early age is key. The earlier you start, the more time your pension pot has to grow and because of compounding – the snowballing effect of your investment returns generating more returns – even small contributions early on can make a big difference over time. With a long time to go before retirement, you can also afford to take on more investment risk, and this again can have a big impact on the amount of money you’ll have in retirement.
It’s also important to take an active interest in your pension, for example where your retirement savings are invested and how well these investments are performing. There are a lot of very mediocre investments and we meet people all the time who have worked hard and saved hard but are still facing a pension shortfall because their money just isn’t working hard enough for them. We work with clients to sort this out.
Our financial planners will help you to understand your existing pension arrangements and look at how these fit with your objectives, such as what age you want to retire, what your plans are following retirement and what level of income you need to fund them. We use a process known as cashflow modelling in order to do this.
Once you have the figures showing what you have and what you need, we can build a plan around them. Even if there is a shortfall, you can make positive changes. It might mean saving more money if you can or even working for a few more years, but you will have realistic expectations about what the future could look like.
It’s vital to do research and take time when looking for a financial adviser and to choose someone you trust and connect with. The world of finance is still perceived as complicated and unapproachable and it can be difficult to find an adviser and firm that are deemed understanding and approachable. Because of this, many put off dealing with these companies and therefore, put off dealing with their finances.
We’re here to help you tackle retirement planning and make the most of your pensions. Why not book a no-obligation pension consultation to find out more about how we can help you? You can use our online form, email email@example.com, request a call back or call us on 020 7189 2400.
This article does not constitute personal advice. If you are in any doubt as to the suitability of an investment please contact one of our advisers.
* Solving women’s pension deficit to improve retirement outcomes for all, The Chartered Insurance Institute’s Insuring Women’s Futures’ task force, October 2018