I am lucky enough to have made life-long friends with three women that I met at secondary school: Annabelle, Emily and Patricia. The four of us are now in our early 40s. We each have two children and this puts us into our mid-to-late 50s when, hopefully, our children will no longer be financially dependent on us.
Annabelle and I took two periods of maternity leave and returned to full-time work after each of our children was born. Emily had her first child and returned to work part-time after four years of being a stay-at-home mum, then took a further four-year break with her second child and has since worked two days a week. Patricia returned to occasional freelance work after both her children were at primary school, with a total period of eight years not working. She still works freelance now, fitting in work around childcare.
What is clear is that the choices we made have had different financial impacts on each of our lives. But the biggest financial difference we will see is in the levels of our individual pension savings when we get to retirement age.
Annabelle has been a teacher since her early 20s and, after two periods of maternity leave, returned to the same pension scheme and continued her membership. She will no doubt be able to retire at 65 and receive a good level of pension in her own right, with a separate tax-free lump sum.
I have four years of defined benefit scheme membership, followed by saving into three different company defined contribution pension arrangements. I will need to personally contribute more to my pension pot than Annabelle to get a similar level of benefit. I may find I have more flexibility in the way I can draw my pension but won’t have the guaranteed income that Annabelle will have.
Both Annabelle and I will have State Pension provision, starting when we reach age 67 (under current rules) in addition to our private pension income because we will have paid enough National Insurance Contributions to qualify.
Emily and Patricia both have around five years in a defined benefit pension scheme from their first employments before having children. They have no other pension provision and unless they now make some changes – and some huge pension contributions to catch up – they will be reliant on their husband’s pensions providing for them in retirement too.
Emily's employer has a workplace pension arrangement, but as she earns less than the £10,000 per annum threshold she hasn’t been auto-enrolled and hasn’t asked to join.
Patricia works freelance so would need to open a private pension and make personal contributions, but has never felt it was affordable for her to do so. Up until my recent prompting, neither Emily nor Patricia had discussed their husband’s pension with them to understand what they have in place, if it will be enough for both of them to have a comfortable retirement and what pension provision they would get if their husbands died before them. Divorce has a whole other impact on pensions with women tending to come out worse, but let’s hope we don’t have to consider that.
Emily and Patricia will most likely not accumulate enough National Insurance Contributions to build up a new State Pension as they both currently earn less than the National Insurance Contribution thresholds for employed and self-employed people.
Patricia also has a shorter National Insurance Contributions history as she opted-out of receiving Child Benefit when the High Income Child Benefit Tax charge came into force given her husband’s level of income. She gets penalised for this whereas those who receive Child Benefit gain a National Insurance Contribution Class 3 ‘credit’ when they are not working and receiving Child Benefit.
Research from the Insuring Women’s Futures programme led by the Chartered Insurance Institute reflects Emily and Patricia’s stories perfectly. Looking at why women fall behind men when it comes to pension provision, the research highlights how women are more likely to change careers, work part-time and re-enter the workplace, how they spend more time caring for both children and parents and how they so often earn less during their careers.
And the impact of this is stark: according to the Pensions Policy Institute, by their early 60s women have pensions of about £51,000. This is in contrast to men who have £157,000 in pensions.
My suggestions to women on pension planning would be:
Tilney’s financial planners, like Sally, offer free consultations to give you the opportunity to talk about your pensions and other financial plans. They can’t give you advice during this consultation but they can answer your questions and provide guidance. And if you decide you would benefit from financial advice, your financial planner will explain Tilney’s services, what we can do to help and how much it will cost. You can book a consultation online or give us a call on 020 7189 2400.
Names have been changed.