In recent years awareness of the gender pension gap has increased. Against the backdrop of International Women’s Day, George Howard, Chartered Financial Planner at The Fry Group Middle East, offers her tips for women on how to tackle financial gaps in pension planning.
Most of us are keen to build good retirement plans for the future, and for many of our clients these later years provide a real opportunity to enjoy financial freedom. Sadly the gender pension gap can spoil this prospect for many women; by the time a woman reaches 65 to 69, her average pension wealth is £35,700, roughly a fifth of that of a man her age, according to a 2018 study by the Chartered Institute of Insurance.
As a result, for many women the gender pension gap can create a real issue at retirement unless action is taken. So, what can you do to close the gap?
Take control of your plans
In years gone by many people received a company pension in retirement, which covered the majority of retirement spend. Today pension benefits through companies have reduced considerably leaving you with a greater responsibility to make plans and save for your own retirement, whilst making the most of any company arrangements which might be available. However you build your retirement savings, it’s important to put in place a financial plan to help you achieve your own interpretation of financial freedom – perhaps through a combination of tools including a pension, ISAs, investments and buy to let property income.
Considerations during your work career
When you start a new job, consult with a professional adviser to see how the pension options available fit with your personal goals and objectives. Join any company pension scheme as soon as you can, so that you and your company can both make contributions. If you are working in the UK, pensions are extremely tax efficient offering tax relief on the way in, and tax-free growth. It may also be useful to review any other arrangements which are available through your company. For example, you may have access to a good scheme which offers the option to buy shares at discounted rates. Building your portfolio in this way can be very advantageous in the future.
Planning a career break
If you are planning to have a family, it can be useful to maximise your pension or investment contributions before and/or after a career break to offset the time when your income is reduced. If you can continue to save it’s important to do so; don’t forget you may have the option to maintain contributions to a UK pension or ISA. One of the most important conversations is to speak to your spouse or partner who may be able to supplement your shortfall in pension or investment savings, if you’ve jointly agreed you’ll be the one taking a break from work to raise a family. And if you’ve had to dip into savings, make a plan as to how to build these back up, perhaps with lump sum or bonus payments once you’ve returned to work.
Spend time in the market
If you are building an investment portfolio never underestimate the power of compounding. Compound interest is created when you reinvest your returns, which then earn interest too. So ultimately giving your investments more time to build can be really valuable. A financial adviser will help you to determine your investment risk level so you are comfortable with your overall portfolio. Always remember nothing is set in stone; you can adjust your risk in line with your circumstances or as you approach retirement.
Pay your National Insurance contributions
Although it’s unlikely that the State Pension will support you fully in retirement it can still be an additional way to supplement your income, and you can delay taking it to boost its effectiveness. Don’t forget to pay your National Insurance contributions to ensure you qualify for your State Pension; if you take time off to have children any career break will be factored in. You can check how many years of contributions you have accumulated here.
Get a grip of the basics
There are some financial basics which are important to always bear in mind:
- Take time to understand your household finances in detail and budget accordingly
- Where possible try to maintain independent savings to protect you and your financial position in the event of divorce or separation
- If you have a specific goal to achieve, speak to your adviser who can cash-flow model your requirements and show you what you need to save in order to achieve them
- Consider saving some or all of any bonus payment you might receive – you may like to think of it as a way to ensure future financial freedom
- Make the most of the allowances and reliefs available locally, especially in the UK. Save into pensions first, as these are the most tax efficient
- Regularly discuss your circumstances with an adviser who can provide professional help on how much of your income you should be saving. A good rule of thumb is to save 20% of your income for your future, perhaps as a combination of investments, pension funds, ISA contributions and cash deposits
Getting into good financial habits from the start of your working life, or early in your career, helps the practice to become second nature, leaving you in good financial shape for years to come.
Ultimately, it’s important to ask yourself if you feel in control of your finances. As with many aspects of our lives there are, of course, always reasons to delay saving for the future because of age or other life events such as marriage, buying a home or having children. But with International Women’s Day in mind please do remember to give priority to your own financial future by tackling any pension gap you face, and considering any other financial concerns you might have.
To discuss your own plans, please contact your nearest office.