Top pension planning tips for women

Research released recently revealed that women in the UK currently face retirement incomes of £4,900 lower per year than men. Although women’s average annual retirement incomes will hit a record high of £16,900 this year, this is still markedly lower than male retirees, who average £21,800 a year in retirement according to latest figures.

The research by Prudential also showed that one in six women will have a retirement income below the minimum benchmark standard of £9,982 set by the Joseph Rowntree Foundation, compared to one in ten men.

It has been interesting to read the media commentary on these facts. Some are framing the statistics in a positive light; hailing the new ‘record high’ averages; others note the gap that still exists between the sexes. Whilst it is encouraging to see the gap between men and women’s pensions narrowing, we think there’s still a long way to go.

So here we offer women some food for thought around paying into pensions and closing that gap.

Earn as much as you can

The main reason that women pay less into their pensions than men is that they earn less. So the number one tip is to try and ensure you’re earning the maximum you can. Far too many women still shy away from asking for a pay rise. If you think you should be paid more or are earning less than the industry average for your role, don’t be scared to approach your employer about it. If you know or suspect you are being paid less than a male counterpart, this is unlawful. Approach your employer in a well-structured, measured and positive manner. Remember that if you are paying into a workplace pension scheme and you earn more through knowing your worth, your employer will also pay more into your pension as pension contributions are usually based on a percentage of your salary.  So a pay rise will not only boost your income now, but also into the future.

This is particularly important for women who are in lower paid industries, or are earning less due to working part-time hours.

Save as much as you can

Recent statistics from the Department for Work and Pensions (DWP) show that 84% of workers who qualified to be in a workplace pension actively took part last year. This is a real victory for auto-enrolment pensions; the 84% figure is a dramatic increase from when they were introduced in 2012.

However, there are real concerns that the amount people are setting aside is too low a proportion of their earnings, leaving the distinct possibility of a shortfall by retirement age. The current minimum level of contribution into defined contribution workplace pensions is only 3% from the employee and 2% from the employer, totalling 5% of income. Although this is set to rise to a total of 8% by April 2019 (5% from the employee and 3% from the employer), many commentators say this is still too little.

If you are able to accumulate ‘savings’ after all your monthly outgoings, you should seriously consider directing some of this into your pension.  The longer you can leave a pension fund to accumulate; the better off you will be thanks to the effects of compounding (the process of reinvesting any gains made). Starting to save as early in life as possible is also vital to benefitting from compound interest.

Understand the impact of decisions

The effects of earning less than men are made worse by the fact that many women take career breaks or change to part-time work – often following on from having children but also to care for older relatives. We’re not decrying these important, noble choices that are essential for our society: we know family comes first and you can’t buy or get back precious time with loved ones.

However, we are saying that you should at least be fully aware of the impact these decisions can take on your long-term finances. Most of the time we base changes in our working patterns on the immediate affordability, not considering that part-time working or a career break will mean we will also be paying less into a pension. More needs to be done to communicate the impact that such decisions can have on retirement savings. Although money isn’t the only factor when making life decisions, it is at least important to know about and understand all the financial outcomes. If you take a career break or reduce your hours, be aware that you will contribute less to your pension fund during this time, and may need to return to try and make up for the shortfall later on in your career.

The same applies if you decide to set up your own business or work for yourself, which a growing number of women are doing. It may be a struggle financially in the first few years and paying into a pension comes bottom of the list. When the fruits of your labour start to pay off, you should think about setting up and contributing to a private pension plan.

For more advice on any aspect of pension or financial planning, contact us and one of our advisers will be happy to answer your questions and help you out.

 

 

Top Financial Planning Tips for 2019

If you can believe it, 2018 is almost drawing to a close. Getting to grips with your financial affairs at the start of a New Year is always a good idea, as it will not only help you save money in the coming months, you could also find that you are better placed to make money from your investments.

So here are my top tips to improve your finances in the coming year.

  1. Have a financial plan – Approaching your personal finances in the same way a business approaches its annual planning may seem like a strange strategy, but it really does work.

You don’t really need to create an incredibly detailed plan with profit forecasts for your household, but you should create a set of financial objectives for the coming year. Goal setting is one of our favourite motivational techniques at Addidi – once you know where you are headed, you can work out how to get there.

  1. Budgets – It sounds boring, I know. But if you get your budgeting right then you will have more money available to enjoy yourself, which can only be a good thing.

The biggest stress you are likely to face is having a lifestyle not matched by the amount of money you are earning. Often when we take a good look at our finances, there are always things that we pay for that could be cancelled to save money. For example, unused gym memberships, Netflix subscriptions when you rarely watch it/could share with someone else, or long-standing subscriptions to magazines you no longer read. All of these little expenditures in a month can soon add up, and you are essentially just throwing money down the drain. So, stop wasting money and start saving it, or if you really cannot do that, then at least make sure you are getting full enjoyment out of the things you spend monthly money on.

  1. Compare your insurance and utility bills each year and make sure you are getting a competitive quote. It may seem like a chore, but when it comes to your insurance and utility bills it really is worth checking the details each year. You can use comparison sites to help you do this, and for a small investment of time you can make big savings.
  2. Do not borrow unless it is for something big and important – debt has become such a way of life for many of us that we have forgotten the art of saving and waiting for something we want. In the finance advice industry we classify bad debt as when you borrow to fund an unsustainable lifestyle, such as for holidays or buying furniture you don’t really need. While good debt would be, for example, to buy a home. Stick to good debt, and otherwise save for what your heart desires. You will value it more for the wait and delayed gratification is good for the soul.
  3. Risk – the amount of risk you will take with investments is something so personal, it is quite difficult to talk about generically. But one thing is for sure – you should never be taking investment risks that stop you sleeping at night.

You can afford to take higher risks for longer-term savings such as pensions, because if things do not go your way then you will have enough time for markets to recover. But your short-term saving goals (such as your pot for a deposit on a new home) should not be risked.

  1. Insurance – home insurance is one thing, and car insurance is obligatory. But for many people that’s as far as they get when it comes to insuring their valued assets in life. Failing to insure your income, your life or your health could cost you a lot more than you expect if you become critically ill. Expand your thinking on insurance towards income protection and critical illness cover. You will be so thankful you had it if something unexpected happens, and it is likely to cost a lot less than you think.
  2. Write a will – Around two thirds of us do not have a will. By neglecting to make one, not only are we leaving behind a major headache for our loved ones, we are also potentially handing our worldly goods over to the Treasury which gains tens of millions of pounds each year from people dying intestate.

Writing a will does not have to be complicated (especially if your financial affairs are relatively simple), and it can save your estate a lot of money in inheritance tax if you fall into this bracket. Many people think only the very rich pay inheritance tax, but thanks to a combination of rising house prices and little movement in the IHT thresholds over the years, many people now become 40% taxpayers for the first time after they have died. It doesn’t have to be this way, so take the time to write that will.

Bear it in mind, it is certainly better to speak to a solicitor before doing so as homemade wills often cause more problems than they solve.

  1. Be happy – sounds obvious, right? Still, getting your finances in order is one of the best ways to relieve unnecessary stress you might be suffering from. Every problem has a solution – it might just take a little time and effort. So don’t lose heart, never bury your head in the sand, and get the help you need sooner rather than later. When you have everything as it should be, then that is the time to enjoy the fruits of your labour.

Happy planning!