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International Women's Day
6 things every woman should know about pensions
On this International Women’s Day, we want to highlight the particular challenges women face when it comes to pension saving and share practical steps that you can act on.
When it comes to pension savings, unsurprisingly us women still lag well behind men. Taking time away from work to generally look after family is the biggest factor to blame for women’s pensions falling short - but there is a bit more to it than that. Women tend to live longer – which is good news, sadly though, we tend to earn less. Women, on average, earn approximately 16% less compared to male counterparts 1 – we are also, statistically, less likely to invest money compared to men.
Unfortunately, there’s a long way to go in closing this financial gap but there are things you can do to help protect yourself. By becoming familiar with the causes, there are plenty of actions you can take to become better prepared. We’ve outlined our 6 top tips below on how to transform your finances.
1. Start a pension early
One of the best things you can to do safeguard your future is start saving towards your pension as soon as you can – even if it’s small amounts to begin with. Compound interest plays a massive part in funding for retirement, so saving little and often early in life can be the difference between a good pension pot and one that falls drastically short. This becomes especially important when you might have many years in the middle of your career when saving is at its hardest.
A good rule of thumb is to save half your age as a percentage of your salary. So, if you start saving at age 30 you should try to save at least 15% of your salary each year until retirement. IMI will match your contribution up to 7%, so that’s 14% you’ll have going into your pot by only paying half of that yourself. If you can afford to put more in when you get any bonuses or pay rises, then do it. No-one ever regrets paying too much into their pension!
2. Try to keep up contributions whilst on Maternity Leave
Let’s be honest, your pension will be pretty low on your radar when you're pregnant and going on maternity leave or taking a career break, but there’s a real incentive to keep paying into your pension. Choosing to cancel your contributions entirely can have a detrimental impact on your long-term financial plans.
If you’re enrolled into the IMI workplace pension and IMI contributes to it, they must continue to do so while you’re receiving Statutory Maternity Pay. Your pension contributions will be based on your maternity pay not your usual pay, but IMI will maintain their contributions on your usual, pre-maternity pay.
3. Divorce adds to the gap
No-one wants to think about breaking up when swept away by romance, but when it comes to divorce it’s worth noting that women see incomes fall by a third in the year following their divorce - almost twice as much as men 2.
Often, pensions are forgotten when discussing divorce proceedings, but the pot can be as valuable as a house. If the pension split can’t be agreed between the couple, a Pension Sharing Order evens out discrepancies.
One way you can protect yourself, should the worse happen, is to put away money for you. Having your own savings pot that will see you financially looked after is a good idea. Maintaining your financial independence within a relationship is crucial.
4. Invest
Interest rates are currently so pitiful that your savings are likely to earn little or no interest. The good news is that your pension is invested in the stock market, so it has the opportunity to beat inflation and grow - and you can choose whether or not you take an active choice in the investments. If you don’t want to make a decision, your provider chooses for you.
If you’re thinking about choosing your pension investments or investing other savings - knowledge is power. Start to learn, research and read about the subject. Starting investing with small amounts is the best way to get started and limits the downside. There are also plenty of ready-made investment portfolios on offer, make sure you do your research and find a reliable platform.
5. Keep track of all your pension pots
There’s billions of pounds worth of pension savings going unclaimed – yes billions! Easily done if you’ve got lots of different pots to keep in check. You should receive yearly pension statements from each of your pots. If you’re not receiving these, get in touch with your pension administrator.
Combining your different pots may help you to stay on top of them and to build a full picture of your overall savings. Working out if this is a good idea, will depend on several factors, including what type of pensions they are, how much they are worth, how well they are being managed, and whether they currently have any special guarantees attached.
If you’ve lost track of any pensions,The Pension Tracing Service can help.
6. Understand your State Pension
The State Pension is separate to any workplace or personal pensions. This income is paid by the Government and isn’t enough alone to give you a comfortable retirement but if you’ve built up a good pension pot elsewhere, it’s a good boost to your savings. The full new State Pension amount is £179.60 a week (£9,339.20 a year)3 and everyone is entitled to a State Pension - as long as you’ve made enough qualifying National Insurance Contributions. You need 35 years to get the full State Pension amount and at least 10 years to get something.
If you’ve taken time off work to raise a family or to care for a family member and have been in receipt of child benefit or carer’s credit, then you will have been credited towards your State Pension. You can check your State Pension entitlement here.
The information within this article is for guidance purposes only and is not intended to be advice. If you’re unsure about your financial situation and need further help, the Government’s free guidance service MoneyHelper is a good place to start. It may be helpful for you to also speak to a financial adviser.