How women fare financially in retirement
We like to think we will be young for ever but until we discover the fountain of eternal youth, one thing which will improve quality of life in later years is a decent pension. It is estimated that 38% of 60-year old women will be single by 2021, so it has never been more important for women to get to grips with their finances.
Unfortunately, women are not saving enough to keep them in old age. There is a growing reality gap between UK saving and spending habits, particularly among the fairer sex according to IFA Promotion (Ifap), a body which promotes independent financial advice. Ifap’s survey revealed that if their income rose by a quarter, most women would rather spend the extra cash on holidays or home improvements than divert any of it to their pension pots or long-term savings, or to pay off debts.
Ros Altmann, former pension adviser to Tony Blair, says: ‘It is important for women to realise they can and should take responsibility for their financial futures and start to plan and think about pensions or other savings for themselves. Women tend to be in lower paid employment and therefore have less opportunity to save as much as men. They also have a shorter working life due to years spent caring for children and women are also less likely to be in jobs with occupational pensions attached. All these factors mean women find it harder to save than men,’ she adds.
The big picture
There are just over 10 million pensioners in the UK and 64% of these are women. But research by the Fawcett Society found many as one in four single women pensioners now live in poverty. This trend could continue according to ‘The Gender Pensions Gap – encouraging women to save for retirement’ , a report published by the Association of British Insurers (ABI). It shows that a large number of women are at serious risk of facing poverty in retirement. Up to 4.5 million working women do not save enough for retirement; and another 4.5 million women are not saving at all.
Head of Pensions and Saving at the ABI, Joanne Segars, says: ‘The pressures on women today are immense. But increased pension saving is vital if women are to have a decent income in retirement.’
The ABI report also reveals that women are specifically disadvantaged compared to men when it comes to pensions: 35% of women do not belong to a pension scheme compared to 25% of men and even when they do save, over half of women contribute less than £100 per month to their pension. Women are also less likely to benefit from employer contributions – only 9% of women receive an employer contribution of more than 5% of wages, compared to 15% of men.
The state we’re in
Another problem is that the State pension system is biased against women. The level of weekly basic State pension paid to women over 60 and men over 65 depends on the amount of National Insurance they have paid during their working lives. But many people – in particular women, who are more likely to have spent time out of work caring for children – have not made sufficient NI contributions to qualify for the full
Alan Johnson, Secretary of State for Work and Pensions, described women’s pensions as a national scandal and the Government is writing to millions of people, inviting them to make good their NI records for the years 1996 to 2003 by paying a lump sum. Just 14% of women have a full basic State pension in their own right and most married women rely on their husbands’ pension record for their retirement income. Twice as many women as men have to rely on the means-tested minimum income guarantee. Anyone who has paid less than 25% of their State pension contribution (that is, women with less than 10 years’ contributions) gets nothing from the State, so any contributions they make are wasted. This means that women who are not yet saving in a private pension fund are risking a huge shortfall when it comes to retirement.
Pensions and divorce
The rising divorce rate means an increase in the proportion of single mothers and longer life expectancy so a growing number of women are likely to be on their own later in life. The Centre for Research on Ageing and Gender, at Surrey University, suggests the number of divorcees is projected to rise to 14% of the female pensioner population by 2021. Although, new rules that allow pension sharing at divorce were introduced in December 2000, in practice few women have benefited. Out of about 300,000 divorce settlements by 2003, pension sharing has been included in only 1,300.
Annuity rates
Once you reach retirement you must buy an annuity which is used to turn your pension funds into retirement income. But this is where women lose out again when they are given lower annuity rates than men, because of their longer life expectancy. A 65-year-old woman will receive roughly 7% less income than a male.
To make matters worse, rates paid on annuities have fallen by about 40% since 1994 and are likely to fall further. Pension experts say that increased life expectancy and falling interest rates had led insurers to cut their annuity rates. Both sexes are finding that their pension fund buys a much smaller income each year. A man who invested £10,000 in an annuity ten years ago could have expected an annual income of £1,024. Today the same investment would garner an average income of £602. For women, the average payment has fallen from £930 to £567.
Mind the gap
‘Long-term saving just doesn’t seem to be registering as a priority in the British psyche, but it’s never been more critical,’ explains David Elms, Chief Executive of IFA Promotion. ‘The only way the UK’s vast long-term savings gap can be addressed is by first closing the reality gap between what we need to save and what we think we can get away with.’
Find guidance, budgeting tips and information at www.unbiased.co.uk/getsaving or by calling 0800 085 3250 for a copy of a Join The Saving Revolution guide.
source:uk.biz.yahoo
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