Women: we need to talk about your retirement
Irish women are falling well behind men when it comes to their pension pots, which can lead to some serious financial shocks in retirement, writes Louise McBride
Published 23/10/2016 | 02:30
Many women won't be able to afford the cost of a weekly grocery shop for one on the private pension they get when they retire. This is because the average Irish woman is only saving enough to get a payout of €40 a week from their private pension, according to research conducted by Standard Life last June. Most of us would struggle to cover the cost of the weekly groceries - or a meal out - with that money. That €40 a week adds up to about €2,000 a year. Including the full State pension of €12,392 a year (the rate that applies from next March) would bring a typical working woman's retirement income up to €14,392 a year. That's about €277 a week.
Furthermore, not everyone qualifies for the full State pension - and there are hundreds of thousands of women who don't have a private pension at all. Financial hardship in retirement has therefore become a real prospect for a lot of women.
The average Irish man has saved twice as much for his pension as the average woman has, Standard Life has found. One of the main reasons for this is that women often take a step back in their career to look after children - which can in turn make it harder for them to save enough into their pension. Time taken out of the workforce to care for children is time lost paying into a pension - as well as receiving any employer top-ups to that pension.
Women also often earn less than men - regardless of whether they have children are not - and this too eats into their ability to make meaningful savings into a pension.
"Historically many women have been in low paid jobs where pensions have not been provided," says Rachael Ingle, managing director of pension consultancy Aon Hewitt. "Women tend to start saving and investing later than men and experience financial insecurity and instability to a greater extent than men. Inflation also has a larger impact on women as they live longer."
Whether you're a stay-at-home mum or working woman with or without children, do what you can to boost your pension. Here are some steps that can help you get there.
Stay-at-home mums (and indeed stay-at-home dads) will find it particularly hard to get a decent pension together - simply because it is difficult to save for retirement if you're not earning an income.
Many stay-at-home mums expect to rely on their spouse's pension come retirement - but this can be an expensive mistake.
"The man may not be around by the time they retire," says Ingle. "If you are relying on your husband or partner's pension in retirement, make sure you understand what you can expect from it. For instance, if your husband is buying an annuity [a product which pays an annual pension income in retirement] with his pension pot, make sure you discuss and agree what pension income will remain for you in the event of his death."
With many annuities, the annual pension it pays will stop once the person who bought that pension passes away. It is possible to buy an annuity that pays a pension to an individual's estate for a number of years after their death. It is also possible to buy an annuity which pays an annual pension to a dependant. Be sure your spouse chooses one - or both - of these options if you are relying on his pension.
Ideally, don't rely on your spouse for your pension. This can be difficult to do if you're not earning any money - however, rental income could be one avenue open to you.
The rent generated from a second property (if you own or inherit one) could serve as a pension come retirement. Similarly, under the rent-a-room scheme, you can earn up to €14,000 tax-free a year (from 2017) by renting out a room or rooms in your own home to private tenants.
One of the biggest advantages you have as a working woman (assuming you are in a PAYE job) is the company pension provided by your employer - if it offers one. (Should your boss not offer you a company pension, it must offer you access to a standard PRSA - a type of personal pension.)
With most company pensions, the employer pays a contribution into the pension scheme - on top of the contribution you make. In some cases, an employer will match your contribution, so the more you save into your pension pot, the more your employer puts in. Make sure to get the highest possible contribution from your employer.
Another wise move would be to increase the amount you're saving into your pension whenever you get a pay rise.
Be mindful that your pension can take a hit should you have children - even if you return to work full-time after maternity leave.
It's therefore worthwhile asking your boss how you can maximise company and State pension benefits while off on maternity or parental leave.
Many mums job-share or work part-time when children come along - and they take a hit in pay and pension benefits as a result.
Remember that as a part-time worker, you are entitled to the same access to a pension as a comparable full-time employee, unless you are working less than a fifth of the normal working hours of the full-timer.
Should you be considering working part-time or reduced working hours, do you best to avoid your income falling below €33,800. Once your income is below €33,800, you are no longer paying any income tax at the higher tax rate - and so you cannot claim pensions tax relief at the top rate either. This means you'll get a tax break of 20pc on your pensions contributions - rather than 40pc .
Another challenge faced by part-timers is their modest income. Clearly, it's harder to save for a pension if you don't have much disposable income. Don't be tempted to put off a pension until your finances improve - get into the habit of putting something aside (no matter how small) from a young age.
Should you be working part-time for a company that offers a pension plan, start saving into that plan - particularly if your employer will pay a pension contribution on your behalf.
Sunday Indo Business