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Five pension pitfalls women need to know about
Women are lagging behind when it comes to pension saving, risking poverty in old age. Here are some tips to get you back on track.
by Michelle McGagh on Jul 06, 2012 at 12:49
Women in their 30s have been urged to start saving for retirement now to ensure they have enough time to build up a decent retirement income, or risk becoming one of the two-thirds of women who say they will not have enough money to live a comfortable retirement.
Research by Prudential shows just 31% of women believe they will get enough income from their pension pot to retire comfortably, compared with 45% of men.
Women are sleepwalking into old age poverty, but the introduction of auto-enrolment into workplace pensions should mean they will be able to start catching up with their male counterparts, and start looking forward to a decent retirement.
Get a pension automatically
Auto-enrolment begins this October and will be phased in over the next four years. It means that employees who are not yet part of a workplace pension scheme will be automatically enrolled into one, as long as they are earning over £8,105 and the qualifying earnings they will have to make contributions on earnings between £5,564 and £42,475.
Workers will have the option to opt out of the scheme, but will be auto-enrolled in every three years, meaning they will have to continue opting out.
Many workplaces do not currently run pension schemes and will be forced to adopt one. A large proportion are likely to pick the National Employment Savings Trust (Nest), a government run, low-cost pension.
However, in order to build up a sufficient pot women need to start saving as soon as possible, preferably no later than their mid-30s, said Marta Phillips, chief executive of The Pensions Advisory Service (TPAS), a government-backed organisation that provides savers with pensions advice.
Phillips said the introduction of auto-enrolment and Nest would help increase the number of women saving; however, older women would struggle to make up the savings. Currently a fifth of women have no personal pension, compared with just 9% of men.
‘Women under 30 or 35… have got time to save, but the real issue is those beyond mis-30s,’ Phillips said. ‘Up until 20 years ago few women had careers, and bridging that gap is the challenge. For some women there is just not enough time [to make up the money], and they need guidance.
‘It is important to save now... putting a little aside now will have benefits in the future. The problem is retirement is a long time away and people who are healthy do not think about it.’
Deirdre Flood, retirement expert at Prudential, urged women not to be scared by pensions or let a lack of understanding prevent them from saving, adding that Prudential research showed just a third of women were comfortable talking about pensions. ‘if you do nothing then you leave yourself in a vulnerable place. You should not let [fear] be a barrier,’ Flood said. ‘Doing nothing is not an option.’
Women can fall into a number of pensions traps. Here’s a guide to the key ones to avoid:
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