This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
The COVID-19 pandemic has led to many undesirable outcomes. One that is less well publicised is the impact on UK women in retirement. According to the Chartered Insurance Institute (CII), the pandemic could lead many women to save less into pensions. This, in turn, may result in women, as a whole, possibly not having the same average retirement wealth as men for another 140 years. This is partly because women’s careers have been disproportionately affected by COVID-19, leading them to pick up a greater share of childcare and housework responsibilities – undermining their ability to progress and earn more.
Prior to lockdown in 2020, a significant gender pay gap still existed which was anticipated to close in 2050 (about 30 years from now) with pension equality expected by 2100. With the pandemic setting these figures back considerably, it is now more important than ever for women to take note and take steps to ensure they can enjoy a comfortable retirement. Below, our financial planning team at Elmfield Financial Planning in Padiham, Burnley, Lancashire shares some ideas about how to start doing this.
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Women and state pensions
Official figures show that women are more likely to take part-time jobs, lower-paid work and career breaks to look after children. Only 25% of mums with a 1-year-old work full-time, whilst 15% of mums describe themselves as “economically inactive” due to care for dependents.
This is a noble choice or vocation, yet it is important to make sure you still get the best state pension deal. In 2021-22, the full new state pension grants £9339.00 per financial year and rises with wages or inflation. To attain this, you need at least 35 qualifying years of National Insurance Contributions (NICs) on your record. These are typically built up automatically as you work for your employer, who sorts it all out on your behalf under the PAYE system.
However, be careful to check that you are still building up your qualifying NIC years during any periods of childcare. Many parents are unaware of the NI credits system, which lets recipients with a child under the age of 12 to keep building up their NI record for their state pension (even if you are not in paid work). To receive it, stay-at-home mums/dads must apply for child benefit but then yield the payment of it. Make sure you query this with your financial adviser if you think it could affect you, since even one year of missed contributions could result in over £240 of lost state pension per year when you retire.
Don’t just rely on your spouse
One report shows that 12% of married women plan on relying on their spouse’s pension when they retire, and 17% have no pension of their own. This might be fine if your relationship works out and you both live a long time. Yet none of us knows what might happen. The overall divorce rate in England and Wales is 33.3%, and can have a huge impact on your retirement finances. Pension sharing laws brought in since 2000 provide some protection for women in this respect, helping to ensure that women who have taken career breaks for children still get some pension entitlement. However, this will be at the judge’s discretion. A share of your partner’s pension may not be guaranteed in the final financial settlement. Sometimes, pensions can be forgotten about or missed – especially if there are multiple pots scattered around.
Personal & workplace pensions
Whilst your state pension is important, you cannot rely on it to provide a comfortable retirement. This means that women need to have extra savings available – e.g. in a workplace or personal pension – should partners die before them, or if unions end in divorce. Remember that your spouse’s pension schemes will likely vary in generosity towards you. Also, his/her state pension is not inheritable (which is why you need to build up your own). If you are married or civil-partnered, therefore, consider finding a good time to open up this discussion with him/her to put plans in place should your relationship ever end (due to death), or break down.
This could be a hard conversation depending on your relationship and personalities. However, if you both care for each other then you will both want to ensure the other person will be comfortable in retirement – whatever happens in the future. One idea may be to open up a pension for the non-earning spouse (e.g. their own SIPP – Self-Invested Personal Pension) to support their state pension income if they ever end up on their own in old age. A financial adviser can also help facilitate this discussion and point out areas of your retirement plan that need attention or improvement.
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938