Women: 10 ways to get a big­ger, bet­ter pen­sion

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As the state pen­sion age is equalised, Laura Miller lists the steps women should take to get a de­cent re­tire­ment in­come

The state pen­sion age for women will rise on Nov 6 to 65, the same as it is for men. Mil­lions have been caught out by the change. Tele­graph with Kay In­gram of fi­nan­cial ad­viser LEBC, has drawn up a 10-point ac­tion plan that women at dif­fer­ent stages of life can use to best pre­pare for their re­tire­ment.

1. Mind the pen­sion gap

Be­cause of the gen­der pay gap, em­ploy­ers’ pen­sion con­tri­bu­tions are on av­er­age £47,000 less for women over a life­time, so their fi­nances are hit twice. While em­ploy­ers must do bet­ter, you should act where you can to avoid los­ing out. If you aren’t au­to­mat­i­cally en­rolled, join the work­place pen­sion and don’t opt out, even if your salary is low at first or your role tem­po­rary; it is yours to take with you and £80 paid in by a ba­sic-rate tax­payer equals £100 saved. Higher earn­ers pay £60 to get £100. Staff who earn more than £10,000 and are over the age of 22 are au­to­mat­i­cally en­rolled into a pen­sion within three months of join­ing the firm. Em­ploy­ers pay at least 2pc into it, ris­ing to 3pc in April.

2. Plan to die late

Women un­der­es­ti­mate their life ex­pectancy by up to eight years, dis­tort­ing sav­ing plans. They live to 83 on av­er­age, 3.7 years longer than men, and need about £13,400 a year for ex­penses, or a to­tal of £49,600 more than men. Plan for a long life.

3. Get a fair di­vorce

Di­vorce rates fell last year for ev­ery age group ex­cept the over-60s. For older cou­ples, pen­sions can be more valu­able than the home.

Courts can or­der pen­sion shar­ing in di­vorce; the spouse with the big­ger pen­sion, usu­ally the hus­band, must trans­fer some to the ex-spouse. But three quar­ters of di­vorc­ing cou­ples fail to take pen­sions into ac­count. Sep­a­rat­ing cou­ples should con­sult a spe­cial­ist so­lic­i­tor ac­cred­ited with Res­o­lu­tion, a lawyers’ or­gan­i­sa­tion, as well as a fi­nan­cial ad­viser.

4. Avoid the ca­reer break trap

More women are pay­ing into a pen­sion than ever, but sav­ing has dropped among those aged 35-44, a group likely to be rais­ing a fam­ily. Preg­nant women can feel pres­sure to stop their pen­sion con­tri­bu­tions in prepa­ra­tion for the end of ma­ter­nity pay. Don’t – es­pe­cially as em­ployer con­tri­bu­tions are also lost. Sav­ing pen­nies here costs pounds of pen­sion later.

Once the baby is born, em­ployer pen­sion pay­ments will usu­ally con­tinue while statu­tory ma­ter­nity pay is re­ceived. With salary sac­ri­fice pen­sions, em­ploy­ers must pay in for the en­tire ma­ter­nity leave, even after statu­tory pay­ments stop.

Keep sav­ing dur­ing any ca­reer break and re­join your work pen­sion on re­turn. Even if part-time and below the auto-en­rol­ment thresh­old you will ben­e­fit from tax relief. Some com­pa­nies of­fer re­turn­ers a tax-free pen­sion bonus.

5. Take charge of your pen­sion

Keep track of your pen­sion sav­ings; a third of women don’t know the value of theirs. Most mod­ern pen­sions can be used for life to let you and fu­ture em­ploy­ers pay in. Con­sol­i­dat­ing pots can help and tends to in­cur lower charges. Older, fi­nal salary pen­sions are less flex­i­ble but very valu­able.

Pay for a pen­sion re­view from a reg­u­lated fi­nan­cial ad­viser. Over50s can also get free guid­ance from Pen­sion Wise.

6. Be­ware state pen­sion short­falls

To re­ceive the full state pen­sion you need 35 years of Na­tional In­sur­ance cred­its. Ca­reer breaks or time abroad can cut your en­ti­tle­ment, but if you’re not work­ing and claim­ing car­ers’

al­lowance or par­ents’ child ben­e­fit, NI cred­its are cov­ered.

Higher earn­ers who waive child ben­e­fit must still reg­is­ter for it or the un­em­ployed par­ent, of­ten the mother, loses the NI cred­its, which can only be back­dated for three months. Where earn­ings are just over the high in­come thresh­old, pen­sion con­tri­bu­tions via salary sac­ri­fice can re­store child ben­e­fit, and so NI cred­its. Any­one with a state pen­sion credit short­fall can buy up to six years ex­tra – worth­while as the cost equates to less than two years of the ex­tra pen­sion bought.

7. Take some cal­cu­lated risk

Men’s av­er­age pen­sion pot is £212,000. In­vested at a 3pc re­turn, it gives an in­come of £6,360 a year. For women the pot is just £132,000, re­quir­ing riskier in­vest­ments re­turn­ing 5pc to match men’s in­come. But stud­ies show that women are more risk averse, so likely to be stuck with less.

Re­view your in­vest­ments reg­u­larly. Are you on track or are you be­ing too cau­tious? In­fla­tion eats at the value of cash, so hold­ing too much is costly.

8. Talk about money

Un­der­stand your house­hold in­come and out­go­ings, es­pe­cially if you are fi­nan­cially de­pen­dent on your part­ner. At 55, sav­ing £240 a month for 20 years could build up more than £71,000 to fill the in­come gap should you sur­vive your part­ner.

9. If you live to­gether, get hitched

Un­mar­ried co­hab­itees do not get state be­reave­ment pay­ments, even if fi­nan­cially de­pen­dent on their part­ner. Some pri­vate pen­sions will also not pay out. If your part­ner dies with­out a will you could be left with noth­ing. The spouse ex­emp­tion from in­her­i­tance tax also won’t ap­ply so if they leave you as­sets of more than £325,000 a 40pc charge will be due on the ex­cess. Get­ting mar­ried solves many of these is­sues.

10. Plug the gap

The “pen­sion free­doms” give over55s the right to draw on their pri­vate pen­sion as they wish. This can fill the gap be­tween re­tire­ment and the state pen­sion age, so build up your pri­vate pro­vi­sion; £100 per month in­vested over 22 years could pro­vide the same as three years’ state pen­sion.

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