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Pension Planning for Women – What are Your Options?

Posted by on 27 February 2017

Pension Planning for Women – What are Your Options?

Since pension freedoms came into place in April 2015, making access in retirement more flexible and often affordable, there has been much more interest in the area of pension planning. Alongside pension freedoms, we have also seen auto-enrolment being phased in over the last few years, bringing pensions to the public’s attention more than ever before.

Despite this, the world of pensions often remains an area of mystery for many. The jargon associated with pensions is perceived as difficult to understand and there are a seemingly endless number of pensions to choose from. Whilst these factors may be off-putting, it is essential to start making your pension provision as early as possible.

There are three main types of pension: state, occupational and personal. Here are some of the things you will need to consider in relation to each option.

THE STATE PENSION 

Over the last few years, a number of significant changes have been made to State Pension entitlement for women. Whilst previously the State Pension comprised of two elements - a basic state pension and the State Second Pension (S2P), a new flat rate scheme has been introduced for those retiring after 6th April 2016.

Alongside this, the age at which women can access to the State Pension has increased. Previously set at 60, the age has been increased to 65 for women between 2010 and 2018 and will continue to increase in stages, alongside men, until it has reaches 68. You can check your State Pension qualifying age by using the Government tool here.

The State Pension – Reaching Retirement Age Prior to 6th April 2016

If you reached State Pension age before 6 April, 2016, you will continue on the old two-tier system. That is, you will receive a basic state pension, plus top-ups. The most you can currently get is £119.30 per week. Under this scheme there is no minimum level of National Insurance Qualifying years and the number of years required to gain access to the maximum weekly pension is 30 years.

Basic State Pension – Reaching Retirement Age After 6th April 2016

To qualify for the basic State Pension under the new flat rate scheme you need to have built up 10 'qualifying years' worth of National Insurance contributions or credits before you reach State Pension age. The amount that is payable is tiered based on a number of factors and in order to gain access to the maximum State Pension, you will need to have built up 35 qualifying years of NI contributions or credits.  This criteria in particular is set to affect women – many of who will have taken career breaks during the course of their employment to have children/raise families. There are options for paying voluntary National Insurance contributions or deferring the receipt of State Pension in order to gain access to higher amount. For more information on these options, click here.

 OCCUPATIONAL PENSION

 An occupational pension is when an employer organises and administers a pension scheme for its employees.  Over the past few years, auto-enrolment legislation has made it mandatory for organisations to make an occupational pension scheme available for its employees. There are two types of occupational schemes - money purchase schemes and final salary schemes.

Money Purchase 

Also known as defined contribution schemes, these are by far the most common form of occupational pension now available. In the majority of cases, a money purchase pension will involve you contributing a percentage of your salary (usually around 5%) to your pension via a ‘salary sacrifice scheme’ (ie. payable before tax or NI deductions), which is then topped up by your employer.

In a money purchase scheme your income in retirement is based on the amount that has accumulated in your pension fund, commonly referred to as your ‘pension pot’. This is largely determined by the level of contributions you and your employer(s) have made over the course of your employment, and thereafter the investment performance and the rates for converting a pension pot to an income in retirement.

There is no cap on the amount of pension you can now receive, however there is a cap on the amount you can accumulate in your pension pot and how much you can contribute. In general, you can accumulate up to £1M in your pension during your lifetime and up to £40,000 per year free of tax implications.

In general, few women retire on an adequate let alone maximum pension. As such, you may wish to supplement your company scheme by paying additional voluntary contributions (AVCs) into your employer’s scheme, or making contributions into a personal pension with an external pension provider (see below). In some instances you may be able to buy ‘added years’ in your employer’s pension scheme.

It is particularly important to think about making additional contributions if you have had a career break or have changed jobs frequently.

Final Salary 

Final salary schemes have become increasingly rare over the past few years and outside the of public sector, few firms now offer such plans to new employees, with some even cancelling schemes for existing employees.

In a final salary scheme your pension will depend on the level of your salary just before retirement and how many years you have worked for the company. A typical scheme requires you to have 40 years of service to obtain the maximum pension, which will be based on two thirds of your final salary. This type of scheme also ensures you know the likely pension you will receive at retirement. And it may provide additional benefits such as an increasing pension, dependant’s benefits and life cover.

If you are not entitled to the maximum pension you should consider making additional pension contributions. For instance, if you were a member of such a scheme for only 20 working years and your final salary was £36,000, you could expect to retire on a pension of only £12,000. Most schemes provide the option of buying added years or contributing to an additional voluntary scheme (AVC).

If you have a final salary pension scheme you may find that part of it replaces part of your state pension entitlement.

PERSONAL PENSION PLAN

If you are self-employed or your company does not provide a pension scheme you will need to think about providing your own pension by paying into a personal pension plan (PPP). You may also choose to set up a personal pension plan as an alternative, or in addition to, contributing to an occupational pension scheme.

There is no limit on the benefits that are payable in retirement but there is a limit on the amount you can pay in - 100% of your salary to a maximum of £40,000 each year. In addition there is an overall cap on the amount you can accumulate in your pension pot know as a ‘Lifetime Allowance – which is currently set at £1 million.

It is never too soon to start paying into a pension because you get far better value from the contributions you make while you are younger, as your investment will have more time to grow. For instance, if you pay regular contributions into a PPP throughout your 20s, 30s, 40s and 50s, the money you paid in your 20s will account for at least 50% of the pension you receive at retirement!

Most personal pensions are very flexible and cost effective these days - you can make monthly or lump sum contributions, you can stop and restart payment (without any penalties) and you can invest in a large number of funds.

As with an occupation pension scheme, there are a number of taxation benefits involved with contributing to a PPP. If you are self-employed and contribute to a PPP in the form of employer contributions, you will benefit from a reduction in Corporation Tax. If you are employed but not a member of an occupational scheme, your employer can also make payments into your PPP for you – allowing a potential reduction on the level of income tax you pay.


Pension planning can be complex. Due to the fact that each person’s circumstances are different, there is no ‘one size fits all’ solution. To speak to one of our advisors about setting up a pension, discussing your options regarding your existing pension or to look at the best way of utilising your pension pot during retirement, please contact us on didi@addidiwealth.com or 0207 060 1200.