Less than half of the British workforce contributes to any kind of private pension. That figure is shocking in itself given that the state pension is known to be inadequate to provide a comfortable retirement. But when the figures are broken down along gender lines, a shocking statistic is revealed: according to Investec private bank only 35% of women are contributing to a pension of their own.
Why is there such a discrepancy between men and women’s pension provisions and what can be done about it?
State Pension
To qualify for a state pension, individuals in the UK have to have a certain number of “qualifying years” of National Insurance Contributions. The exact number depends on how old you are, and when you want to retire. The total required for women is set at a lower limit already, but additionally the state pension system recognises that women take time out of the workplace to care for young children, and make an allowance for missing qualifying years by using “home responsibilities protection” to make up the difference. Even so, many women still do not have the required number of qualifying years in their own right, although if they are married they can rely on their husband’s entitlement.
However, these days the poverty of pensioners has been well publicised. So why are women failing to make adequate provision? The answer seems to be cultural one, with women focussing any spare cash on their families. However, in an age when 1 in 3 new marriages will end in divorce, it is unrealistic to count on the traditional family model of a male breadwinner providing for the household for your financial future. Whilst it may be unromantic to consider this as a young couple, the reality should not be ignored. During maternity leave or a career gap, payments can be made from the couple’s income in the wife’s name to take advantage of the tax efficiency of saving in a pension.
Safest Options
Pension pots can be taken into account on divorce, when the courts or mediators are diving up a couple’s assets. So some wives who have made no provisions of their own in the expectation that they would share their husband’s have not lost out. This is the kind of thing that could be provided for in a pre-nuptial agreement, but it is never safe to rely on such arrangements: the safest thing is to make one’s own arrangements.
In a society where you are likely to live longer, but need more healthcare, waiting for an inheritance from your parents is no longer an option. The chances are that there will be many families of pensioner parents whose own pensioner aged children will have to work to support them. Care home fees can run to hundred of pounds a week, for which there is no government help for families with savings.
In 2008 the Office for National Statistics showed that there were around 850,000 women of retirement age who were still working. While the state retirement age is currently 60 for women, rising to 65 and eventually 68, it may be the norm to see women much older than that continuing to work out of necessity to cover food and fuel bills, rather than as a lifestyle choice to pay for luxuries. The same survey showed that women earn 17% on average less than men, which is mostly attributed to the career breaks they take to raise children.
What can women do about this?
The only answer is that they have to start saving sooner. And they need to save more. As women are leaving it until later to start a family (the average age of a woman giving birth to her first child is 29), pensions contributions should be started as soon as you start your career. On the other hand, this is easier said than done, as many young people at the start of their careers are struggling to repay student debts and to save for a deposit for a house.
So after the debts have been paid off, deposit put down on a flat, wedding paid for and babies delivered, rather than viewing pensions contributions as a luxury to be considered after all the other bills and expenses have been paid every month, pension saving needs to be prioritised higher up the list of family priorities. If woman’s employer has an occupational scheme, she should consider joining at the earliest opportunity: even if she feels that her contributions are not significant they will add up and grow over time.
