Your Money: Women need compensating
Sunday 09 August 1992
The Government is currently trying to decide how it is to bring the state pension age for men and women into line. Last week, the Social Security Advisory Committee, which advises the Government on pensions, recommended that the pension age for women be raised to 65. The switch would be phased in over 15 years. No woman now aged over 52 would be affected, but those over 42 might be caught by the phasing-in period.
Under this regime, younger women who want the option of retiring at 60 will have to pay for this themselves.
Young women will need to pump money into a private scheme, either one run by their employer, or a personal pension. And once it is set up, they will need to ensure their contributions increase with earnings - pounds 30 a month today might seem a lot to find but in 10 or 20 years' time it will not be buying a great deal of pension benefits.
A 25-year-old woman wanting to retire at 60 can expect to have to put 10 per cent of her salary into a personal pension plan if she wants to draw a retirement income equivalent to one third of the salary she is receiving on retirement. This assumes her present salary increases in line with average earnings, and that the investment fund produces middle-of-the-road investment returns.
In fact, she will probably interrupt her contributions if she takes a break in her career to have children.
Increasingly, women will need to take the demands of their pension planning into account when negotiating pay. Those who are able to join schemes run by their employers will normally benefit from the contributions the company makes on their behalf.
Unfortunately, most companies believe the rules on personal pensions are too complicated to allow them to contribute directly to an employee's scheme. This is a flaw in the supposedly flexible pension regime established in the last five years. The Government would do well to think about improvements here to help compensate women for raising their retirement age.
IS IT still worth pouring money into National Savings now the rates have been cut? If rock-solid security, fixed returns and low minimum investment levels appeal, the answer must be yes. It is possible to get better returns from some building society accounts and from Guaranteed Income Bonds offered by insurance companies. But many savers like the idea that National Savings is backed by the Government and will forsake a sliver of extra interest for that reassurance. And the Government could come under yet more pressure to reduce its rates, making today's National Savings fixed returns attractive.
After Nationwide Building Society announced its savings cuts of on average 0.4 per cent on Friday, it looks as though building societies are set to shore up their shrinking profitability by hitting savers rather than borrowers. They may well capture the initiative in the savings market now - if money continues to flow into National Savings they can repeat the threats of higher mortgage rates that forced the Government into cutting National Savings rates.
Andrew Longhurst, the pounds 300,000-a-year chief executive of the Cheltenham & Gloucester Building Society, states bluntly that people must simply get used to lower returns on their savings in a low-inflation environment.
APPEALS for aid to Somalia should make would-be givers consider enlisting the Government's help in boosting their donations. Tax relief is available on a variety of schemes but these favour large lump sums, or pre- planned covenants. The small spontaneous gift is still ignored.
The Charities Aid Foundation believes that the pounds 400 minimum gift allowed under the Gift Aid scheme, designed for one-off lump sum donations, should be reduced to pounds 100. Given the Government's penny-pinching tendencies at present, it is unlikely to want to increase its bill for Gift Aid. But when it wanted to attack mortgage interest tax relief, it restricted it to the basic rate of tax, 25 per cent. Charities might find themselves better off for a pounds 100 Gift Aid minimum, albeit restricted to basic rate tax, while the Government would be no worse off.
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