In this latest article in her series ‘Putting You in Control’, Sarah Siddons, Chartered Financial Planner of Siddons & Co Financial Planning in Ilkley, West Yorkshire, addresses the issue of retirement planning for women since many women are not saving adequately for the long term.
There are many men who are not saving adequately for retirement also. However, lack of financial preparedness is much more pronounced in women as their savings habits and the structure of their lives can be very different to men’s.
It is this structure that means that they may face more difficulties than men as women are more likely to earn less so will likely save less then men (Gender Pay Gap Service, 5 April 2023), they are generally more likely to work fewer hours to look after children or care for elderly parents and they in general live longer than men so are likely to need to fund longer retirements.
The positive news is that it is never too late to do something, no matter what life stage you are at there is something that can be done.
In short, women are more likely to need to start saving more and earlier.
At the start of a woman’s career, if an individual is classed as an eligible jobholder (aged between 22 and state pension age, earning over the earnings trigger and not already in a qualifying pension scheme), their employer will be required to automatically enrol them into a pension scheme and make pension contributions on their behalf. This is called Auto-Enrolment.
The employee will also be required to make a minimum contribution however, they can contribute more than this if they wish.
Salary sacrifice is a way for the employee to make their contribution. They will agree to sacrifice an amount of their salary and their employer will then pass this amount on to the pension scheme as a pension contribution.
The employee will automatically save tax and National Insurance on the amount of salary that they sacrifice, and their employer may also pass on some of or all the employer National Insurance saving to the pension to increase the amount of the contribution.
By the end of a woman’s 30s, they should aim to have a pot that’s equal to three times their annual salary. At this time of life, women may be tempted to postpone pension saving – especially if they have kids and a mortgage. But if they have the discipline to stick to their savings plan, they will have more chance of creating their dream retirement.
In a woman’s 40s, there are things they can do to improve their financial position and the tax efficiency of their wealth.
If they have taken a career break, or are looking to make up any lost ground on their pension contributions, then Carry Forward is a way to use up to 3 previous years unused pension contributions allowance (subject to the individual having the Relevant UK Earnings available in the tax year to support the carry forward contribution, if made as a personal pension contribution).
Even at the end of a woman’s career, gaining an understanding that there are ways to optimise any savings that you they have will make a difference to their retirement. Facing up to their current situation and looking ahead is better than having their head in the sand and trusting their retirement to a state pension, or even worse to fate.
Basically, saving something is better than not saving at all.
It’s important to think about what you would like out of your retirement and to imagine the lifestyle you want. Will you have enough in your retirement fund to fund this lifestyle?
It starts with a simple figure.
If we assume the average woman will qualify for a full State Pension of £10,600 2023/24 a year (increasing to £11,541.90 from 6 April 2024), the Pensions and Lifetime Savings Association says they will still need to build up a pot worth at least £590,000 to achieve a comfortable retirement (1Retirement Living Standards, Pensions and Lifetime Savings Association, 2023). These figures can seem overwhelming at first, but if you consider the power of compound growth and start saving early, much of this value will be created by simply by having money invested for the long term.
While pensions are still the dominant source of retirement income, there are also other options to consider to help you save for your retirement, such as Stocks & Shares ISAs.
Making full use of your ISA allowances will help you ensure a broad portfolio of tax-efficient savings that can be used in retirement. It also allows you access to the money should you need it, for example, if you are taking a career break.
If you are feeling uncertain about your retirement plans and would like to feel more in control of your financial future, visit our website and get in touch.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.
Siddons & Co Financial Planning is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website: www.sjp.co.uk/products
SJP Approved 28/03/2024
