Simon Read: Why pensions are a girl's best friend
Saturday 11 April 2009
Shocking figures from the Prudential published this week reveal that women retiring this year will end up with annual pensions worth around one-third less than men. Women will get an average pension of just £13,671 – while the average man's annual pension will be £20,313. The £6,642 pension gender gap is because women are more likely to give up work to care for children or relatives, the Pru said.
Of course, the fact that women's wages are still considerably lower than men's is a big factor. The Office of National Statistics reports that the gap is as high as 17 per cent – a scandal in itself. On top of that, only around one-third of women currently retiring have built up an entitlement to a full state pension in their own right. For men, the figure is 85 per cent.
About 2.8 million women in the UK are due to retire this year. I suspect many will look at their meagre pension expectations and decide to work on for a few extra years to boost their retirement income. Few will choose – like the actress Helen Mirren (below), now three years past the current woman's retirement age of 60 – to carry on working because they're still much in demand. For most, it will be a financial necessity.
In terms of qualifying for a state pension, it may actually pay some women to delay their retirement until April 2010 if they can. The Government is changing the rules then, so that from 6 April next year women retiring will need only 30 qualifying years of National Insurance contributions to be entitled to a full state pension in their own right. Until then, women need 39 qualifying years.
Being aware of the changes is important in deciding about retirement timing but, frankly, waiting until you reach or near retirement to start worrying is too late. In an ideal world, we should all be packing away cash for our later years as soon as we start earning.
Experts suggest that, to get a decent retirement income, people should try to save half of their age as a percentage of their salary into a pension scheme. So if you're 25, you should pack 12.5 per cent of your salary in a pension. At 30, it should be 15 per cent. By the time you reach 40, it should have hit 20 per cent.
In the real world, we all have more important things to spend our cash on than the future. But right now there are thousands of people who are a little more cash-rich because their mortgage commitments have shrunk. Using that cash to boost their pension pot is probably a better option than sticking it into a savings account.
It's not just that most savings rates are so paltry at the moment, but that you also get tax relief on pension contributions. Non-taxpayers or basic-rate taxpayers get relief of 20 per cent, higher-rate taxpayers get 40 per cent. That means that higher-rate payers need to put just £60 into their pension to see their fund boosted by £100. Basic-rate taxpayers need only put in £80 to get a £100 injection.
Need another powerful incentive? Just ask anyone approaching retirement whether they wish they had put more into their pension. Anyone who says otherwise is either a happy fool or an Oscar contender.
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