Pension: Women to face a ‘more challenging retirement’ according to DWP data – what to do

Pension: Women to face a ‘more challenging retirement’ according to DWP data – what to do

Pension income and retirement standards have been called into question recently as the Department for Work and Pensions released figures on the labour market status of individuals aged 50 and over. Emma-Lou Montgomery, an associate director for Fidelity International, looked into the statistics and examined what they mean for female retirees.

Emma-Lou went on to correlate the DWP figures with research from her own company: “Our Financial Power of Women report projected the average pension for a man will be worth £142,836 at the state pension age of 68.

“For women, that figure drops to £126,784 – a gap of almost 11 percent. We earn less, and consequently have less to contribute to our pensions over the same, or even shorter, working lives.

“However, if we were to dedicate an additional one percent of our salary towards our pension early in our careers, by the time we retire, our pension could be worth £142,212.

“This equates to just an additional contribution of £35 per month on average for 39 years.”

While saving additional money towards retirement is likely on many people’s to-do list, the actual act can be easier said than done.

Evidently, this can be particularly hard for women but Emma-Lou went on to provide catered advice for the complexities of managing life and savings:

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Factor in the effect of career breaks

While often a difficult and even controversial subject, Emma-Lou started by examining the fact that women often put their careers on hold for family life.

She explained that doing so does not necessarily mean that finances also have to be held back so long as certain changes are made: “Historically, women have been the ones to put careers on hold for childcare – whether by choice or necessity – but this shouldn’t mean sacrificing our long-term financial stability.

“Greater flexibility in the way we work going forward will open up avenues for men to take on more childcare and help enable women to hold on to their careers and continue to put money into their pension pot. Our research found that 56 percent of married women don’t have any arrangements in place in the event that their marriage breaks down and one in ten married women plan to rely on their spouse’s pension in retirement.”

On this topic, Emma-Lou went on to cover another element of life which for women can either be a blessing or a hindrance depending on one’s perspective.

Go against the grain

As she continued: “Mothers have a habit of putting everyone else first. When it comes to your pension savings it’s important to prioritise yourself for once and make sure that your pension is in the best possible shape.

“Take the time to understand where your contributions are going and think carefully about how to maximise them.

“When you joined your company’s pension plan your contributions were most likely invested into a ‘default investment’ – all employer sponsored pension plans have these. While they’re broadly suitable for most people, you may want to explore alternative approaches and funds that are better suited to your goals.

“And increasing your pension contributions – even by a small amount – you have a longer time for that money to grow and benefit from the power of compound interest.”

There are of course elements of life which people will have little control over.

How much a person is paid for example can completely alter how a person engages with their pensions.

More income will always help with this but staff can’t force their employers to pay them more, especially in the current environment.

Fortunately, Emma-Lou provided guidance for those who are on lower incomes and have limited resources.

If you’re in a low-paid career

Women have been particularly unlucky when it came to the pandemic, as Emma-Lou explained: “Despite more women being in the workplace than ever before, the majority of women’s roles tend to be taken up within the retail and hospitality sector – two of the worst hit industries by COVID-19.

“If you’re not earning above the £10,000 threshold to qualify for auto-enrolment contributions, consider setting up a self-invested personal pension (SIPP). Even if you don’t work, you or your partner can still pay in up to £2,880 a year, which with tax relief could bump up the total to £3,600.

Finally, Emma-Lou concluded by examining a very modern problem for the working population:

Track down and tidy up

“You’re likely to accumulate several workplace pension pots during your working life – very few of us will stay with the same company throughout.

“Over time, it can be difficult to track these down. Likewise, often when people move house the data held by past pension schemes becomes out of date. The Pension Tracing Service can help you to track down previous pensions, free of charge.

“Remember though that there’s no tracing service for private pensions, as these aren’t on the Pension Tracing Service database.

“You must contact your scheme provider to find out what your pension is worth. If you don’t know where to start, a good option will be the Unclaimed Asset Register.”

Published at Sun, 20 Sep 2020 03:00:00 +0000