Friday 23 March 2018

Women, face up to your pensions

Many women have weekly pensions that will hardly cover the cost of a haircut

By Tom Halliday
By Tom Halliday
Louise McBride

Louise McBride

The average woman will only get a payout of €60 a week from her private pension when she retires. Most of us would struggle to fill our petrol tank with that money. You're unlikely to have much change (if any) left over after a haircut either.

That €60 a week, which is what Standard Life research found to be the typical payout a working woman can expect from her pension, adds up to about €3,000 a year.

Including the full State pension of €12,000 a year would bring a woman's income in retirement up to €15,000 a year. That's less than half the average wage - it would be a challenge for anyone on that sum to make ends meet. Furthermore, many women could face retirement on an income that is well below €15,000 a year - as not everyone qualifies for the full State pension, many women get a lot less from their private pension than €3,000 a year, and hundreds of thousands of women (including those in and out of the workforce) don't have any private pension at all.

Men usually fare better on the pension front. The average working man can expect a payout of about €7,500 a year from his private pension, according to Standard Life. That's still a very small pension - yet it's more than twice what a typical working woman gets.

Men generally save more into their pensions than women do over their working lives - and this is the main reason a woman's pension often pales in comparison to a man's. Indeed, the average working woman has saved €100,000 less into her pension pot than the average man, according to Standard Life. This isn't because women are irresponsible with their money. Rather it is because it is often more difficult for them to make meaningful savings into a pension, particularly if they have taken a step back in their career to bring up children. (The same of course is true of stay-at-home dads or men who have opted for shorter working weeks to look after their children).

"Many women go on maternity leave between the ages of 27 and 37 - when a lot of men make their career moves up the ladder," says John McInerney, senior technical consultant with Standard Life. "So women are out of the workforce at just the wrong time."

The ability to move up the career ladder boosts your earnings potential - and in turn, the amount you can afford to save into your pension. Even when a woman returns to work after maternity leave (should she decide to do so), she may be unable to throw herself into her career as much as she would like if she takes on the brunt of childcare responsibilities.

"The woman is often the person who has to collect the child if they get sick, or the school closed early on a Friday and so on," says McInerney. "Maybe the woman goes back on a three-day week. All the while, the man is often working away, focused on his career, building stronger relationships and moving up the ladder."

Of course, this isn't always the case. Women don't always take a step back in their careers once children come along - many are the main breadwinners in their home and many pursue successful careers after having children. Many of today's parents also play an equal role in the raising of their children.

However, Ireland clearly has a major gender pension gap - and many women face poverty in retirement as a result.

"Women often retire on less because they live longer, get paid less than men and have, on average, far fewer years in the workplace," says Rachel Ingle, managing director of Aon Hewitt.

"Historically, many women have been in low- paid jobs where pensions have not been provided. They have also tended to look after everyone else around them before providing for themselves."

Too many women rely on the pension of their husband or partner when they retire, according to Ingle - and this can be a big mistake.

"Nine out of 10 women will be alone at some point in their lives as women generally live longer than men - so saving for your own retirement rather than relying solely on your partner's pension is crucial," says Ingle.

So what steps can women take to ensure they're not on the breadline when they retire?

The stay-at-home mother

For stay-at-home mothers who have no income of their own, relying on their husband or partner's pension may be their only option. Make sure you understand what you can expect from your partner's pension if you're in this situation.

"If your spouse is buying an annuity (pension income at retirement) with his pension pot, discuss and agree what pension income will remain for you in the event of his death," says Ingle.

Stay-at-home mothers who are lucky enough to inherit a property or who own a second home should consider holding onto that property as an investment if they can afford to do so. The rent generated from such a property could serve as a handy pension come retirement.

Although anyone can open a Personal Retirement Savings Account (PRSA - a type of personal pension), it often doesn't make financial sense for a stay-at-home mother to pay into one: "If you are a stay-at-home mother earning no income in your own right, you won't be able to claim income tax relief against pension contributions, so it is a very hard sell to recommend someone without any income (and thus any ability to claim income tax relief) to make a contribution to a PRSA," explains McInerney.

"Remember as well that you may be taxed when you draw down the PRSA on retirement many years into the future so you could end up with a pension fund you got no tax relief on giving you an income that you will pay tax on. That's not exactly great tax planning."

The working mother

One of the biggest financial challenges facing working mothers is the high cost of childcare. These fees - which can easily run to €1,000 a month for one child - eat into their disposable income and make it harder to save for a pension.

As a working mother, Ingle is very aware of the cost of childcare.

"As difficult as it may sound, continue to save as much as possible through your company pension plan [despite the cost of childcare]," said Ingle. "Someone who usually pays €200 a month into a pension could suffer a €20,000 hit to their retirement fund at the age of 65 if they they miss just one year's contributions, 20 years before retirement."

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 you maximise the amount of contribution you get from your employer," says Ingle. "Also, when you receive a salary increase, use part of the increase to save for your pension - what you don't have, you don't miss."

The 'mumpreneur'

High childcare costs have prompted many mothers to stay at home and look after their children - while also juggling a fledgling business. As mumpreneuers are self-employed, most of them must either open a PRSA or a personal pension plan if they want a pension. Do your best to earn enough money to bring yourself into the higher tax bracket if you're a mumpreneur setting up your own pension. By doing so, you should qualify for the top pension tax break - that is, 40pc tax relief on your pension contributions as opposed to 20pc.

Get some financial advice when setting up a personal pension plan. "Setting up a pension is complicated and you can make decisions now (by not knowing the rules and arrangements) that will only hurt you maybe 30 years up the road when you retire," said McInerney. "If you are going it alone without any advice, go with a standard PRSA [a type of PRSA] and invest in a fund that is well diversified [where your money is invested across a range of different investments]."


Many part-time working mothers are on modest incomes so they often don't earn enough to pay the higher rate of income tax. As a result, they're unlikely to qualify for the higher 40pc tax break on pension contributions. This can put part-time mothers off saving into a pension - particularly if their modest income is a barrier to saving in the first place. A 20pc tax break (which is what you'll get if you pay the standard rate of tax) is better than none at all, however.

A part-time worker must get the same access to a pension as a comparable full-time employee, unless the part-timer is working less than a fifth of the normal working hours of the full-timer.

Should you be working part-time for a company that offers a pension plan, start saving into that plan - particularly if your employer will also pay a contribution on your behalf. Those employer contributions will make it easier for you to get some meaningful savings into your pension - even if your own savings are small.

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