Mums need to plan more for retirement
Have you considered your retirement plans yet? You might think retirement is a long way off, even if you are secretly wishing it would start tomorrow, but it will come around sooner than you think and women are particularly vulnerable to losing out on the pension front.
Many who take a career break or go part-time risk getting a substantially lower state pension than they may have anticipated due to their reduced National Insurance contributions, although the Government has just announced plans to reduce the number of years you need to pay NI contributions to qualify for a state pension.
From April 2010, the number of National Insurance years people need to qualify for a full basic state pension will be cut from 44 for men and 39 for women to just 30 for both sexes. The move is a response to campaigns around women and pensions. The statistics back up the need for change. In September last year 34% of female pensioners received 60% or less of the full basic state pension – currently jsut over £95 a week, compared with just 2% of male ones, while less than half of women received the full basic state pension.
But it is not just in terms of the state pension that women have lost out. Women often cut back on any private pensions schemes they hold when they reduce their hours or take a career break to look after chilren.
Pensions Act 2008
They often cut back on any private pensions schemes they hold. Out of sight, out of mind, pensions can often remain on the outer limits of women’s vision when they are busy with a growing family and this can make them very vulnerable in old age. The Government has tried to address this in its Pensions Act 2008 which includes a duty on employers to automatically enrol staff on a good quality pension scheme and allows for the setting-up of a new low-cost scheme for those who cannot access a workplace pension scheme. But it is not jut about employers’ responsibilities - women themselves need to be aware of the issues they might face in the future. Recent research seems to suggest they are not.
It’s Time to Prepare report published by HSBC earlier this month shows that only 11% of British women feel prepared for retirement and 16% say they have not taken any steps to prepare. This compares to 15% and 12% respectively for men. Women were also more likely to feel anxious about the future than men.
James Allardice, Senior Sales Development Manager, Retirement & Life Investments at HSBC Insurance, says that historically women left work to bring up children and although this may no longer be the case, many women do still take some time out. He says they need to be more aware of the kinds of things they can do to plan ahead. “The first challenge is around awareness,” he says. “When women consider stopping work for however long they need to be aware that they can still make contributions to their pension scheme of up to £3,600 gross ( £2,880) net a year.” Partners can contribute on behalf of the person who is not working and claim tax relief, with the tax relief going to the person who is not working.
James adds that this also applies to children who can have a pension as soon as they are born. “My son has a pension and he is coming up to two,” says James, whose wife is on maternity leave.
Awareness
Wendy Bevas, Financial Planning Manager for HSBC Bank plc, says people need to plan for their retirement from an early age. The earlier they start the more leeway they have when they have children and need to take time out, she advises. “It is all about being aware,” says Wendy, who is expecting her first child in September.
James says it can be difficult to think long term when, as parents, there are so many pressing financial concerns, such as childcare, but points out that the information given out to expecting parents now includes a guide to finances put together by the Financial Services Authority. There is also a debate around whether midwives should be trained in giving advice about financial awareness. For the moment, says Wendy, the information people need is more readily available. “Whether or not they use it is another issue,” she says.
The HSBC report seems to show that it is in short term financial planning rather than long term planning that women have a particular problem. The former is clearly because they have been caught short by the recession.
It does not, however, mean, says James, that their long term planning is particularly good. He says it is more a reflection of a number of factors, for example, in traditional households women ceded long term financial planning to their husbands and focused more on the immediate household budget. Moreover, says James, our financial services industry is fairly mature, with saving for a rainy day being an underlying part of our social consciousness. This, however, may be changing in a world of easy credit and mass debt where people’s expectations of material well-being having been raised.
Both Wendy and James believe the recession may well act as a wake-up call to people to trim back and to budget more wisely both for the short and long term. They suggest families should regularly do a budget planner to find out what they might be able to cut back on. “A lot of people do not put together something like a budget planner and this sort of planning is paramount for both the long- and short-term future,” says James.
Related articles:
Pensions Act 2008
Women less prepared for retirement
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