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Women and pensions: won't save or can't save?

The only surprising thing about the fact that young women are not saving for a pension is that pensions minister Steve Webb thinks there is something odd about this.

Women and pensions: won't save or can't save?

The only surprising thing about the fact that young women are not saving for a pension is that pensions minister Steve Webb thinks there is something odd about this.

Minister ignores reality

As anyone under the age of 45 will tell you – whether they are male or female – just paying for the basic necessities of life such as rent or mortgage repayments, household bills, travel and food, let alone entertainment and clothes, eats up all disposable income leaving little or nothing to save.

Webb says he is concerned that the complicated nature of pensions, as well as poor awareness, has deterred many young people from thinking about income in retirement. ‘Most young people starting in a job do not get around to thinking about pensions for decades. When young, they think they will live forever, and pensions are something for their granny. There is a danger in thinking that your home will be your pension,’ he says.

Whilst there is obviously some truth in these observations, they ignore reality. The most obvious reason for not saving for retirement is that most people on the average wage of around £24,000 a year, or £33,000 in London and the south east, cannot afford to do so. If you have a non-working spouse and children it virtually impossible. And it is hardly surprising that those who are saving least are young women, because on average women earn around 15% less than men.

Whilst few now see marriage as a career or are prepared to rely on a future husband’s pension saving, for most independently minded young women, saving the deposit for their first home is far more important than worrying about retirement income. And they are probably right. Official figures show that the number of women aged 22 to 29 in the UK who are signing up for a workplace pension has fallen for four years in a row, marking the most rapid decline of any age group.

Women struggling with low earnings

What planet does Steve Webb live on when he expressed concern that people wait ‘decades’ after starting work before they consider how to pay for retirement? Too right – they are struggling to pay rent or the mortgage and household bills. The problem is low earnings. tax credits have allowed employers to keep wages low, secure in the knowledge that income would be ‘topped up’ with state benefits, severely distorting the labour market.

The only surprise is that more young people don’t join their company’s pension scheme because the average employer contributes about 7% of gross earnings on behalf of employees to a ‘money purchase’ defined contribution scheme – much more if it is a defined benefit final salary linked scheme, although few of these are still open to new employees. Workers aged under 30 are the least likely to have signed up for a workplace pension scheme. Fewer than 40% of men and women aged 22 to 29 contribute to a scheme offered by their employer.

But here again, is this really so surprising? In recent years, company pensions have earned themselves a bad name with employees at firms such as Allied Steel & Wire losing almost everything when the Cardiff based company went into receivership in July in 2002. Turner & Newall was another high profile failure and in 2005 the government set up the Pension Protection Fund to offer some compensation to members of final salary pension scheme.

No confidence in pensions

But these events have destroyed employees’ confidence in company pensions – even if they can afford to save. Endless headlines about pension fund deficits haven’t been encouraging either. There is no doubt that people need to save for retirement but for most it is a question of priorities. By 2034, 23% of the population will be aged 65 and over, up from 15% in 1984. An estimated eight million workers have no pension provision, and face having to rely on the state pension, currently £5,078 a year plus means-tested benefits - below the official poverty level.

But if ministers are relying on NEST, (National Employment Savings Trust) the new pension scheme which will be phased in from 2012, they could be badly disappointed. Even with the maximum means-tested benefit reduced to £26,000, as envisaged by work and pensions secretary Iain Duncan Smith, most employees on average earnings or less will be better off opting out of NEST and relying on the basic state pension and means-tested benefits.

If they join NEST, they are likely to find themselves paying for a pension which they would otherwise receive for nothing through the benefit system. In addition, the low minimum contributions which will reach just 8% in total by October 2017 (of which employers will contribute just 3%) will not be sufficient to provide any meaningful pension above state benefit. Until wages rise to a level that leaves young people with surplus disposable income, it is likely that most will continue to ignore pensions. Even worse, if the elderly exercise their new right to work beyond normal retirement age, it is likely to make the situation even more difficult for young people to earn a decent salary – or even think of contributing to a pension.

29 comments so far. Why not have your say?

Sooz Blooz

Dec 08, 2010 at 08:48

Take the pension contributions offered by your employer. Drip feed as much as you can into it and same into an equity ISA. Increase contributions as you progress through your job. It does mount up surprisingly....35 years after I started I now have a reasonable sum waiting for me in 5 years time.

My daughter (mid 20s) a graduate still in a low paying admin job says she can't afford to contribute to a pension.....yet she spends a fair portion of her wages on entertainment and buying things she wants, but doesn't need.

We have to try and take responsibility for ourselves. Expecting others (who could well be worse off) to pay for our old age is irresponsible.

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Dec 08, 2010 at 10:29

Sooz Blooz - Everything you and Lorna say is correct, which means Bank of Mum and Dad has to step in. Every £10 contributed to a pension in your 20s is worth £100 contributed in your 50s, I am told, because of the compounding of the income and gains.

What I have done (and I appreciate many people will not be able to afford this) is to continue paying my graduate daughter her "allowance" each month, but to pay it into a SIPP in her name. She gets the tax relief, I choose the investments (it's currently 25% up since February) and she can't touch it till she reaches 55. She has her own cash ISA which she can raid for a house deposit if she likes, though as it's not beating inflation currently I doubt if it'll go very far.

You try telling a 23-year-old to take responsibility for herself!!! Or perhaps you have . . . . .

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Dec 08, 2010 at 10:41

It was only the other day that they were saying that the dutch get something like 40% more for their contributions, its not not surprising that few people have any inclination to save at any age.

Lets have a story on this Lorna.

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Timothy Skinner

Dec 08, 2010 at 11:37

I would add that v.high charges still abound for those who don't have a company pension scheme or a low cost SIPP. I reckon SIPPs are good for those paying 40% tax (but only subscribe an amount that gets the full 40% rebate), ISAs are better for those paying basic rate as v.high pension provider charges offset the 20%. Remember, you pay for the shiny smile, shiny suit, shiny car and shiny office that reps have.

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Dec 08, 2010 at 11:40

The Dutch story is a myth - the reason they get more is because all the money going in the "pot" stays there when you die i.e. once you are dead the pool of money you put in is gone and no longer in your estate - only good if you live to be 90. However I agree that fees are too high, no one should be forced into annuities and no one should forget the Brown dividend theft from private sector pensions. Until there is a level field between the public & private sector this will not get sorted out (Maybe we should have the equivalent of Roth IRAs). Given the Westminster nest feathering, this is unlikely to ever happen. While we are about this, if ever, it should be done on an EU wide basis from the foundations up. As with all legislation, what we have now with pensions is excessively complex to the nth degree and does not help anyone to make a commitment save.

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Dec 08, 2010 at 13:01

It's a low wage / high housing costs/ childcare costs issue. A pension is deferable - other basic needs take precedence when there are children. Govt needs to take very great care lumbering people with compulsory overcharging pension schemes. Too much lobbying from the pensions industry, too little common sense.

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Mark Wadsworth

Dec 08, 2010 at 13:33

That's an astonishingly sensible article. The key to this is mortgages, rents and saving up for a deposit.

As long as the powers that be insist on inflating house prices and rents as far as possible, we'll never get off this treadmill.

In any event, it makes more financial sense to pay off a mortgage (once you've got one) than it does to save towards anything else.

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Timothy Skinner

Dec 08, 2010 at 13:36

Low wages allied to interruptions means that many women retire on such tiny pensions that they simply exchange the pension contributions they have made for free income support they could have had instead.

Yes, you can ask for immediate repayment of a pension pot smaller than £16,000 BUT READ THIS

This anomaly could be fixed, but its better not to make people take inappropriate products in the first place. Remove the compulsion for employers to provide a pension scheme, remove both employers and employees National Insurance, incentivise employers to take on employees and encourage people to earn more by giving them a full range of choice as to what they do with their own money. Oh yes... and dismantle the pensions industry as a result.

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Dec 08, 2010 at 14:00

This is just nonsense. Everyone is aware, although few will admit it, that many women are still locked into the notion of findind a meal ticket, ie., a man, to latch onto in the (often mistaken) belief that he will keep them without the need for themselves saving for their old age. It's unfortunate but it's true.

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Anonymous 1 needed this 'off the record'

Dec 08, 2010 at 14:27

bob is right. i see this sort of attitude in my job all the time. pretty girls dont get pensions they get married. its not pc to say this and i wish it wasnt true but it is. it is also true that all young people have aspirations to "get rich" and see pensions as un necessary. they generally ammend their view after hitting 30.

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Stephen Ellis

Dec 08, 2010 at 14:59

Lorna's splendid article was spolit to some extent by the silly reference to women being paid less than men. It's far more complicated than that.

Sooz is right. It's all about accepting responsibility. Younger people in particular will spend more on their daily dose of their favourite coffee drink than they will on a pension plan. Not to mention the £30, £40, £50 and even more spent each month on the latest mobile phone. Yet saving for the future is beyond some people's comprehension. To them old fashioned ideas like 'saving' have long gone out of the window. Why bother when the taxpayer will support you from birth to death?

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Timothy Skinner

Dec 08, 2010 at 15:18

"Why bother when the taxpayer will support you from birth to death?" Inheritance Tax at 50%plus then?... and quite right too, its about providing full employment and max-ing incentives for employees to work to their max everyday and be fully rewarded for doing so...women seek financial advantage as men do, so you need to have 10 year horizons which excludes high early charge pensions. Companies are currently trying to recruit math-competent employees of either sex - we need educational and tax systems that help to provide the needs of employees, private companies and the country as a whole in an alignment - thereby creating wealth. Get rid of the public service and parasites like the pension industry reliant on tax breaks.

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Rose G

Dec 08, 2010 at 15:50

The younger women of today may have this attitude regarding meal tickets etc but if you were born in the era when it was considered a positive & good thing to achieve & keep their independence, you will find many woman who manage their lives without a man in sight!

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Dec 08, 2010 at 15:57

Bob you are so right. Women want to be treated as the equals to men but then many (not all) let themselves down by acting like this. Oh well, that's female logic for you.

Other points of note:

1) The state will not be able to afford to continue to pay state pensions when 1 in 4 UK citizens are pensioners so don't rely upon the nanny state bailing you out in your old age

2) Most people who say "I can't afford to save very much for a pension" are usually the same ones who insist on spending their disposable income on smoking, lottery scratch cards, buying the latest consumer goods (iPhones, new cars, flat screen TV's etc), and generally keeping-up-with-the Jones's. These people, when it comes to their retirement, will find themselves living in will the Jones's. Good luck!

3) House prices will eventually equalise with incomes. Market forces will see to that. Basic laws of supply & demand.

4) No it doesn't make more financial sense to pay off a mortgage than it does to save towards anything else. DO THE MATHS!

5) Very high charges still abound with SOME pension plans. If this is the case with your pension then switch it to one that doesn't have high charges. Don't bleat on about it when you hit 65/70 because you won't get any sympathy from me.

6) Do not read the personal finance pages in the Daily Mail. [In fact, don't read the Daily Mail full stop(!)]

7) Avoid With-Profits funds at all costs. If your pension is already invested in one then get out ASAP.

8) Ignore the volatility of the FTSE-100. Almost 50% of its value is determined by that of only 10 companies (inc BP).

9) Do not invest in 'low cost' index trackers (FTSE-100 or otherwise). Costs are only part of the equation. The key is the net effect of performance less costs. Wouldn't you rather invest in something (pension or otherwise) that generates a return of let's say 10%pa with costs of 2% (ie net return 8%) or a low-cost option with a return of 6%pa with costs of 0.5% (ie net return of 5.5%)?

10) Don't deal with appointed reps (with shiny cars & shiny suits) of individual insurance companies peddling their own pension plans that hold only their own in-house pension funds.

11) Instead seek IMPARTIAL advice from an Independent Financial Advisor / Planner ('IFA') See

12) Then follow the IFA's advice however painful that may seem. You will need to sacrifice a few of those short-term luxuries to finance your long-term future.

13) Do not attempt a DIY job with your pension(s) - unless you are an investment professional. It is the most important financial commitment you will have and you will need to rely upon it for c.25% of your life expectancy.

14) 80% of managed funds may under-perform 'the market'. But by definition that means the other 20% over-perform. Employ an advisor to seek out that 20% for you.

15) If you have a sizeable pension pot (£200k+) then try to avoid 'retail priced' funds with high initial fees and high annual management costs. Seek out 'institutionally priced' funds. If you don't know how to do this then employ an IFA.

16) Stop wasting time on these blogs and get out and find a reliable IFA to help you with your retirement funding strategy before its too late. The solution to your problems are not here on the internet and cannot be found from the comfort of the chair in front of your PC.

17) GO AND SPEAK TO AN IFA IN HIS OFFICE - away from the distractions of your home or work. It will be the best couple of hours of your time you ever invested. Yes, INVESTED. Not SPENT.

18) If you are considering an annuity then declare ALL of your medical ailments, drinking & smoking habits. THEY WILL WORK IN YOUR FAVOUR WHEN PURCHASING AN ANNUITY GIVING YOU A HIGHER LEVEL OF INCOME THAN A HEALTHIER PERSON. You'll just not live quite as long as them.

19) Otherwise you have my blessing to sit there playing with your PC, shopping for your next expensive luxury purchase, smoking your fags, bragging to your neighbour about your latest new car, holiday etc and steaming merrily towards the train crash that will be your life of poverty in a few years time.

I'm taking control of my life and finances - because no one else is going to do it for me - and contributing a very sizeable chunk of my income to my pension and other tax-efficient investments. And reviewing them regularly comfortable in the knowledge that I will be able to afford to live a relaticley cofortable lifestyle in my retirement.

If that makes you envious then get off your f@t b*tt and do something about it.

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Dec 08, 2010 at 16:06

Lets face it Lorna, Bob is right, women are the nest featherers, rarely the builders (sorry, but the result of thousands of years of conditioning).

They look for the bargains, even if they do not need the item in question, and in my experience they then throw away the 'bargains' they 'saved' money on. Then those that are not happy with their chosen lot splurge on sprees to comfort themselves to alleviate their misery, and they are the social engineers (!!!!).

Better the put the money into pension provision/assets, but then they would have to share that with their 'beloved, but no, they would rather leach out more from others.

Cynical, perhaps, but I have seen it all too often, but then it is never their fault (even though they chose, consented to the 'proposal').

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Keith Snell

Dec 08, 2010 at 17:03

I am pleased to hear from Rose that there are plenty of women who live without a man in sight, however judging from my experience both as employer and employee there are very few women who have bothered to save for a pension just a huge number who grumble that they do not have enough to live on because they are always overworked & underpaid. It seems quite impossible for many of the population to manage relatively simple calculations as to what they can afford, I am aware of plenty of men in this category as well. The differnce between want and need seems to have been stretched to the point on complete insanity to me. I call it the national disease.

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Sooz Blooz

Dec 08, 2010 at 17:04

Sounds like an IFA! Just one comment, at a slight tangent... The importance for girls to have wise fathers. You still hear comments today along the lines of "my son's education is important, so we took care in choosing the right school for him, my daughter will marry and have someone to look after her, so choice of school less important" Drives me mad when I hear it. My father took great interest in my sister's and my schooling and expected us to work just as hard as our brothers and to have high expectations. We were all encouraged to be self reliant and worked in the school holidays from the age of 16 to pay for our hobbies or holidays.

So, men who complain about free loading women.....make sure you educate your daughters and encourage them to be self can have a bigger influence on their behaviour than you may realize.

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gggggg hjhjkl;'

Dec 08, 2010 at 18:04

The best thing ever done for me when I was young was that my employment was conditional on joining the companies pension scheme. Needless to say I was not overjoyed at this. Leisure was far more important to me at that age.

Needless to say it was probably the "best" thing that I have ever been "forced" to do.

It is a shame in my opinion that this compulsion is not there today!!!

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Dec 08, 2010 at 19:24

Sooz, I did, and their tertiary qualifications were much higher than mine, but now they are breeders!

However they have good earning qualifications, and in one case able to work part time as a consultant anaesthetist and still earn good money.

Whilst I may have been an influence on them I suspect mother's antics after getting the divorce settlement was a greater lesson, she bought a house free and clear and then blew the lot by borrowing against the equity and lost it all within 4 years!

And DAMN the site architects, I am still having trouble posting comments, if more than one, I have to exit the window, reload the same page and having copied the comment from the page that wouldn't post, post the comment. This is a regular problem, since they 'FIXED' that which was not BROKE!!

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Dec 08, 2010 at 19:28

Yeah GGGGGG, just like it a shame the cane was outlawed, it did a lot of good, but not all appreciated the benefits...........

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Dec 08, 2010 at 21:54

Most people (male and female) change jobs much more frequently these days - either through choice or because of takeovers/redundancies etc etc. If they keep joining and leaving company pension schemes they will be constantly paying huge charges and may see very little for it. The recent publicity about the deductions made by pensions companies underlines this point. The way politicians are constantly raiding pension funds and discriminating against savers is another disincentive to saving.

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Peter Jason Taylor

Dec 08, 2010 at 22:23

I recommend the book by Merryn Somerset Webb, Editor-in-Chief of MoneyWeek: "Love is not enough: A Smart Woman's Guide to Making (and Keeping) Money". You should be able to get it really cheap now, because it was written in 2007, but it's still 99% valid today. It provides a wealth of facts, figures and good advice, but is not heavy reading and contains some quite humorous anecdotes. It is aimed at all ages of women and all levels of income and wealth (and debt).

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Timothy Skinner

Dec 09, 2010 at 01:41

Excellent post Mr Taylor

Read this book before you do anything

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Dec 09, 2010 at 11:04

As someone who has been caring for very elderly parents for the last nine years I'm one of those not contributing to the state pension, so won't get a lot when it's my turn in 2 years time. As I don't spend enough hours with my father or mother-in-law (both in counties other than our own) I don't qualify for any payment exemption. In my father's case I am his sole relative in the UK as the others emigrated years ago. The cost of petrol, toll fees is nothing to the emotional strain. But there, that's the way I was brought up. Now being branded as the big society, but think it's more like daughters taking the strain

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Peter Jason Taylor

Dec 09, 2010 at 11:21

Coolamber, I sympathise absolutely with your involuntary position.

Just make sure your parents are getting all of the benefits to which they are entitled, such as Attendance Allowance, etc., and that you are getting Carer's Allowance. You will then receive state pension credits which will help bring your own basic pension closer to the full level.

And ask your emigrated siblings for some financial help if you are subsidising your parents in any way. They could also come back occasionally to give you a break through providing some respite care.

In your case the "Big Society", like "Care in the Community" is just a way of palming off all of the caring onto those who have no option but to carry the can.

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nick rowe

Dec 09, 2010 at 11:33

Problem is not the amount you save it is the cost of administration Life companies and managers charge over treble what our european neighbours pay with low yields the max fee needs to be set at 0.3% or less on the fund over 40 years makes over 35% difference on the final pension compared with what you get from the Life companies today

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Dec 09, 2010 at 15:06

Its a pity so many men appear to be cynical about the motives and capabilities of the normal and ordinary women of the world. I hope a lot of the views expressed about women on this site is not a reflection of a wider perception of women. There are always people looking for a free ride through life, both male and female but to suggest that in general young women are looking for a meal ticket by getting married suggests to me that the author has a deep seated and unreasonable anger towards women in general.

Women who have children generally lead more complicated lives. If childcare needs to be paid for right now, than frankly, a pension which is needed decades from now can wait. There is a well known term 'the mummy track', which is where a lot of women with children work - they are seen as working for money and not career advancement. They tend to get overlooked for promotion. So the career years for women are largely when she is under 35 and over 45. That is a very important 10 years missed out on a career ladder.

If a marriage breaks down it is generally assumed the woman will pick up the slack as far as the children go. A good father may well contribute towards his children and want to stay in their lives, but this is not assumed and very often not the case. A woman would be branded a total bitch for behaving towards her children in a way that is commonplace among men, when a marriage breaks down.

Bob and his friend don't give any credit to the job of bringing up a family, growing a young adult to be productive and contribute to pensions of the future.

I get so tired of hearing complaints about women in every sphere of life be it not saving enough for old age to not caring enough for her family, if she does go out to work. If anyone need to find a scapegoat for anything, look towards the nearest woman to you!!

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Anonymous 1 needed this 'off the record'

Dec 09, 2010 at 15:38

Perhaps you are right Ellen, generalising is filled with pitfalls but i see probably 400 people a year who have potential access to good company pension schemes. A couple of things ive noted over the years ive been doing it. You very rarely see pretty young girls ( unfortunately!). The majority of people i see are male, about 70%, and the women i do see are desperately trying to catch up for the lost years from when they didnt join in their 20's and 30's.

There is probably many socio and economic reasons for this but it is undeniable that for some work is something they do till they get lucky. Women, some women, have that choice. Men, most men dont. It is a reality that a pretty girl will atttract many men, and some of those will be well off.

This is all an observation rather than a "bitter" comment.

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BM Shah

Dec 12, 2010 at 13:39

................................, if you are an IFA please find some way to get in touch with me, because I think you write more sense than many other IFAs I have come across.

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