Challenges facing women in retirement part 2: The changing landscape
The second entry of our series focusing on the challenges women face in retirement details the concerns women have in retirement. Don't forget to read part one if you haven't already.
In order to have a comfortable retirement it is essential to have a plan. Yet, the latest Aegon UK Readiness Report found that over half of the 4,000 respondents thought the state pension was higher than the £5,881.20 it currently is, and in a YouGov report ("Pensions and Investments 2013: Retirement Planning and Gender") only 20% of respondents knew a £10,000 annuity income required a retirement fund of between £180,000 and £200,000.
Despite the importance of planning, the Pensions Advisory Service (TPAS) Women and Pensions 2014 report found that 74% of people did not know what state pension they would receive, while 53% were unsure what their pension would provide to the family or estate when they died. More alarmingly, 76% felt they would not have enough in retirement to be financially comfortable, although this is a difficult statistic to accurately interpret because of differences in lifestyle requirements. However, looking at the YouGov report again, it is very worrying that people underestimate what they will need to save for a comfortable retirement, therefore it could be an even higher number of people who will not have enough in the bank.
Auto-enrolment will help people be prepared for retirement, but, as we detailed in the last post, women are more likely to undertake part-time and low-paid jobs than men, which increases the chances of them not being included in auto-enrolment. This means that the demographic most disadvantaged in retirement is likely to remain that way, as the legislation may not cover them. On the plus side, the women who do enter the workforce in qualifying employment will be enrolled into the workplace pension, and those that don't automatically qualify do have the right to opt-in, but whether those earning below £10,000 a year will feel they have enough to save into a pension remains to be seen.
The fact that there are now options for women in the workplace is clearly positive, but what about women further into their careers? The TPAS Women and Pensions 2014 report states that "married women often tell us that they had opted out of all pensions because their husband made all the provision.This creates a problem should the marriage break down." In 2000 pensions were required to be included in the financial settlement of a divorce, such as by offsetting against other assets or with an order placed on the pension benefits of the spouse. But, the TPAS Report further states that "many divorced women do not realise that they need to be very active in planning for retirement as divorce may have left them low on retirement savings."
The lack of understanding is a common theme in the report, and there is a lot of uncertainty over what happens when the pension holder dies, including potential benefits a pension scheme may offer. In some cases, this can even result in the widow being asked to pay back excess money, if she has been unknowingly receiving too much pension since her husband died.
Although the data still suggests that many women are relying on the pensions of their spouse, there are positive changes in how women are thinking about retirement. The list below shows the shift over the past five years of what women state as their main pension issues:
- An increase in the State Pension age
- A shortfall in National Insurance records
- Understanding retirement options
- Death benefits
- Automatic enrolment
The TPAS report had further positive news: "As the pensions landscape continues to change, our typical customer is also changing and we are pleased to report that the average age of our caller has reduced, as more and more people start to think about pensions earlier on in their careers.... Unfortunately, based on a sample of written enquiries in 2013, our current gender profile shows women are less likely to contact us than men."
Though it isn't perfect, it is at least changing in the right direction. Questions are there to be answered, and it's worth talking to an impartial adviser for some personal guidance and clarification on important matters.
Our next instalment of this three-part series focuses on how women can improve their retirement fund.
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