Saving for retirement ahead of all the other daily pressures on finances can be tough.
The challenge can be particularly difficult for women who take time out of work to raise a family. Research suggests that only 50 per cent of women in their 30s work full–time, compared with 81 per cent of men of the same age.
Whether taking an extended career break or returning to work part-time, mothers will usually see their income reduce significantly. Combined with the added costs of raising a family, pensions are often relegated to the bottom of the priority list. Almost 20 per cent of women in their 30s prioritise financially supporting their children above saving for retirement, according to Scottish Widows “Women and Pensions” Report1. Taking this into account there is a real risk that some women won’t have enough money to comfortably see them through their retirement.
There’s no quick fix to get women saving more, but auto enrolment will have an important role to play, as does financial education. Almost half of the women surveyed said they want to understand more about workplace pensions, and personal pensions in general.1 Being better informed could go some way towards giving women the retirement they want – educating clients is at the heart of our financial advice service.
Save – but not necessarily into a pension
Most mothers and carers, whilst staying at home, will be a non or basic rate taxpayer, so to put money into a pension would offer limited tax benefits. However, savers benefit from a 20 per cent tax relief boost on the first £2,880 of pension contributions per tax year, regardless of whether income is earned, turning the sum into £3,600. The same limits apply if someone else, such as a partner, makes contributions on their behalf.
An ISA (Individual Savings Account) could be a better option. You can invest up to £20,000 in an ISA during this tax year (2017/2018) and your money grows tax-free. You can access the cash if you need to, even when invested into a Stocks and Shares ISA. If circumstances change, these funds could then be moved into a pension to generate tax relief.
Check your National Insurance contributions
The State Pension will be useful to have in retirement no matter how much you manage to save elsewhere. It is essential however, that you do not take it for granted without checking that you will qualify.
It is not the amount you pay that counts but the number of years you have paid in. Currently you need to have 30 years’ worth of contributions or credits to qualify for the full state pension. You can check your National Insurance record online using gov.uk tool which will also tell you whether you can pay voluntary contributions to fill any gaps and how much that might cost.
Automatic enrolment began in 2012 and is currently being rolled out across the UK. That means that if you qualify (and most workers will) you will be automatically signed up to your workplace scheme.
Once that happens you will have 30 days to decide whether you want to opt out or not. Do nothing and you will remain enrolled, meaning both you and your employer will make contributions. If you stay in the scheme you will also benefit from tax relief on the contributions your employer makes – so it just makes sense to stay in.
Save more if possible
If possible place more into your pension. If you receive a pay-rise or a bonus then it is a really good idea to ring-fence that money for your retirement savings. Of course, it’s not always easy to do that, life can be very expensive, but it’s essential to make some provision for retirement.
You can’t start too early (or too late)
It is never too early or too late to begin a pension. While you’re young you have plenty of years for your investments to grow. And if you’re older then there’s tax-relief on your contributions to ensure it grows as well as some investment growth.
Check your pension
Once your pension is up and running you need to keep tabs on it so you can check it’s performing as you would expect. Whatever pension scheme you are a part of will provide an annual benefit statement, which should show you how your pot is performing and whether you need to review your investment options, contribute more, or even set up an additional pension.
This information is based on our understanding of current pension rules. The rules on pensions change regularly and a tax liability could impact your overall financial planning goals. Please remember that investments can fall as well as rise and the return from them may go down as well as up, is not guaranteed, and you may not get back the amount you invested. If you’d like to discuss your retirement plan, we’d recommend contacting your independent financial adviser.