View the article online at http://citywire.co.uk/money/article/a442974
Pensions: Can't save or won't save?
One of the few good things about raising the State pension age to 66 is that it might finally concentrate minds on the necessity to save for retirement – especially women.
One of the few good things about raising the State pension age to 66 is that it might finally concentrate minds on the necessity to save for retirement – especially women. They will be the big losers from the changes. With marriage no longer a secure lifestyle and relying on a husband’s pension a dangerous option, more may be encouraged to make their own provision for retirement.
Any woman born after April 6th 1953 will have to wait until she is 66 to draw the basic State pension, currently £97.65 a week for a single person or a married woman who has paid the full NI contribution, or £156.15 for a couple where one person is claiming on their spouse’s contributions.
This presupposes, of course, that women – and men for that matter – can afford to save in order to supplement the state pension. Most need every penny they earn to bring up a family and pay the mortgage. One of the major reasons given for not saving - in every survey asking why half the population has made no pension provision at all – is that people on average incomes and below cannot afford to save. A recent survey from Scottish Widows shows that younger women don’t even think about saving for retirement while half the over 50s save inadequately compared with men.
There are two main reasons why women don't save as much as men. The first is that they don't earn as much as men. A recent inequality survey showed that even in top jobs they earn, on average 16% less than men.
Don’t bank on marriage being your pension
The second reason is that many still expect to marry and that their husband will provide for them – not least of all because many men earn substantially more than women. Given the high incidence of divorce this is a dangerous approach. In 2008 there were 232,000 marriages - and 136,000 divorces.
And you only have to look at the high incidence of men purchasing single life annuities - the income a pension buys, in this case, covering just one person - to realise that men take the view that when they are gone, someone else can look after their wife - probably a new husband, which is also one of the major reasons why men avoid buying life assurance too!
Figures from Standard Life show that half of all married men purchase a single-life annuity, despite the fact that men’s life expectancy is shorter than women’s and there is a high risk that they will leave their widow without a pension. There is a two-thirds likelihood that a female reaching retirement age will outlive her male companion and a 40% probability that she will do so by 10 years or more. Opting for an inflation linked pension and joint life cover will reduce a 65 year old man’s income from an annuity by more than 40%, so it’s easy to see why men don’t buy joint life annuities.
Attitudes need to change
The Scottish Widows report uncovered a disparity between pension provision and attitudes to long term savings amongst both older women and younger women compared with men of the same ages. It shows that young women aged 18 to 29 have typically accumulated just over half of that achieved by young men – an average of £4,816.50 compared with men’s savings averaging £7,709. They are saving just £49 per month, compared to £111 per month for men. This is hardly surprising given the 16% disparity between men and women’s earnings.
Older women don’t seem to be doing much better. Women aged 51 to 59 have accrued on average just £37,642 in retirement savings, compared with the £54,345 saved by men. Ian Naismith, head of pensions market development at Scottish Widows, said, ‘we believe that auto enrolment, coupled with better pension and long term savings education, are the key elements to improving retirement provision in the UK.'
The contrasting experiences of my daughters
None of this is surprising but it does highlight the need for a major educational job - as well as a change in women’s attitudes. My two daughters, born only eighteen months apart, illustrate the two extremes.
The older one left university, became a highly paid money broker with a good occupational pension scheme – and married another high earning broker with an equally good pension entitlement. When they divorced after 18 years of marriage the settlement included a lump sum from her husband’s pension scheme as she hadn’t worked for the last eight years of the marriage.
This she duly invested in a personal pension along with paying up back National Insurance contributions. Currently she is entitled to NI credits as she has a young child. When she returns to work she will, no doubt, make full contributions to an occupational pension scheme and she is a good saver. Having retrained as a teacher she should be able to work until age 66. She will be relatively comfortable even if she doesn’t remarry.
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