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How can women make the most of their pensions?
We collaborated with leading pension provider PensionBee to bring you six podcasts all about pensions. These podcasts cover the basics as well as looking in depth into different types of pensions.
In this episode of the How To Be A Money Magpie podcast, founder Jasmine Birtles is joined by Romi Savova, the founder and CEO of PensionBee, the kind sponsor of this episode and Jessica Beard, a financial journalist at The Telegraph. They discuss how women can make the most of their pensions and make sure that they don’t lose out.
Listen to the podcast below, or read the written summary!
“I didn’t set up PensionBee with women particularly in mind, as pensions are a minefield that impact basically every consumer in the UK.
But of course, I am a woman, so I hope I do bring a female angle into the business with our approach to simplicity and product development in general. Increasingly, on a personal level, how women can do more with their pensions is on my mind.”
“There’s a lot of different issues and challenges women face more than men. With state pensions, you’d expect there not to be too much of a divide, but in reality, there is.
That comes down to women having to take time out of work, they’ve got caring responsibilities and they may miss out on really valuable years of paying in their national insurance credits. They might get to retirement age and find they don’t get the full state pension.
This year, the DWP and the government acknowledged the fact they’ve been underpaying a lot of women their state pensions. There’s about £1 billion owed. Retired women have been needlessly living on less.
Going on to private pensions, you get a motherhood penalty with women taking time out of work. You get a ‘good daughter’ penalty, where women have cared for their elderly relatives. Women miss out on crucial years of saving.
There are certain tricks people can do to make sure they aren’t missing out on that money.”
“For example, if you’re about to go on maternity leave, you’re likely to stop paying into your pension for that period of time. What you can do is get your partner to split their pension contributions for that period of time.
This means you’re not missing out. It’s hard to quantify, but a small amount in your pension early on can mean years worth of extra pension down the line.”
“Things have been improving, but the pandemic has pushed everything back again. These issues were exacerbated by the pandemic, really amplified. They meant the gap actually got wider the past 18 months. So we are going backwards in that respect.
The gap widened by £27,000 on average. Women’s pension pots are £180,000 smaller on average than men’s. There is a real issue there and a gap that still exists.”
“[PensionBee] has looked into this several times. A lot of the prevailing wisdom will tell you how women can do more. But really, women are already doing a lot, such as taking on additional care taking responsibilities. Asking women to do more needs to be put into the context of everything they are already doing.
With that in mind, we approached the problem with a fresh pair of eyes, and really dug into why it is that women’s pensions are smaller. On the surface, one of the main drivers is that women simply earn less than men for every hour worked.
It’s a well-known phenomenon across the UK – there have been protests about it. The gap is starting to narrow, but it’s very much prevalent. If you earn 10 or 15 per cent less than your male colleagues, then you are going to have less in your pension.
If you take time out to have children, then you are going to have less in your pension because you may not be contributing for your full maternity leave. Also, when you return, you are often penalised because you take on a lot of care taking responsibilities.
The solution to this is to make our lives equal to those of men. When we look at gender pay and pension gaps, we find in earlier years, men and women are earning similar amounts and making similar contributions into their pension.
It’s when we take time out to have children and raise children the discrepancies arise. The direct intervention for that is that men and women should be sharing parental leave.
If you talk to women about this, they are quite positive about sharing that responsibility. Men too are very much open to being a more active part of their children’s lives. It’s also important to pick employers that support that kind of decision making.
At PensionBee, we focus on parental leave rather than just maternity leave. If you can stop that trend in the early days and have men and women contributing equally to caring responsibilities, then everyone who returns to work will be returning on equal footing.
Pensions are investments, and that means if you have a small gap early on, that gap magnifies dramatically over time because of investment returns.”
“If women raise the amount they put into their pensions by just 1%, it can increase their pension outcome by 25% or more by the time they reach their 60s. This can bring years of retirement income. It’s a little sacrifice today for more tomorrow.
Most employers will have a salary sacrifice scheme. This means you agree with your employer to put a percentage of your salary into your pension before it’s taxed. It’s a tax-efficient way to put more towards your retirement.
Familiarising yourself with what your money is invested in and having a look at how it works is beneficial. Seeing if it’s right for you, or whether you want to invest in something completely different. You may choose something slightly riskier, or even more defensive.
Try to understand it, do a bit of research and go from there.”
“Your pension will be invested in something that’s good for you, so you could leave it where it is, but there’s no harm in having a look at it. Go to your employer and find out a bit more.
When women invest, they invest into different funds which is really good.”
“There does need to be a balance. Motherhood is a good time to take stock of your personal finances. In addition to figuring out where your current pension is, look into your previous pensions.
Most of us will have had jobs throughout our lives. The average person changes jobs 11 times. At PensionBee you can combine them into a new online plan. You can use your smartphone or the website to make additional contributions, if you can afford to do it.
It will give you peace of mind to have taken control of that aspect of your finances.
Another thing to point out is that motherhood does generally make you think about, ‘what if something does happen to me?’. Pensions do sit outside of your estate, so if you were to pass away before the age of 75, without access to your defined contribution pension, which is what most people have these days, then it would move to your beneficiaries.
Therefore, you need to be thinking about who your beneficiaries are, whether it be a partner or your children. It’s an important family decision that needs to be made.”
“After property, your pension is usually the largest asset to take into account. The amount of couples splitting their pensions in divorce is at a 10 year low.
There are 3 main ways you can split your pension in a divorce. One is pension sharing, where you split your pension immediately at the time of the divorce.
The second is pension offsetting, where you find two assets, for example your property and a pension that are roughly a similar value and you take one or the other.
The final is pension earmarking, which happens the least. This is where you won’t start to take your pension until your partner takes theirs. When they receive theirs, you’d then get a portion of that.”
“This is a decision you want to make together as a couple. It also depends slightly on the type of pension you have.
Defined benefit pensions will have specific rules as to how much a spouse will be paid upon the death of the individual who owns the pension. You should check your paperwork to understand exactly what that means for you in that scenario.
In a defined contribution pension, it’s very important to nominate your beneficiary. You can often do this online, with some pension providers you may have to fill out forms.
It’s worth letting your provider know what you want to do so they can take your expression of wish into account. Sorting this out is almost as important as sorting out your will.”
“The most important thing for a woman to do is ask. Sometimes you might not know exactly what your partner’s pension situation is, or what their employers’ benefits have been like.
It may open up benefits even your partner didn’t know they had as part of thei package. There’s no reason women shouldn’t be the first to ask.”
“The single most important piece of advice is to start early with as much as you can. The biggest intervention that you can make for your future income is how much you put in today.
Because of investment returns, the longer your money has to grow, the more beneficial it is to you ultimately. It can be off-putting to thing about pensions and tax and complex paperwork, but you can do it in an easy way. I think future you will really thank you.”
“The first place to start is to get a grasp on it. Draw up a budget. When do you plan to retire? How much do you think you might need for every year of retirement? You can then get an idea of whether you’re on track with your pension.
You can decide whether you need to start putting more into it, or whether you’re saving enough to be comfortable.
Check your state pension. Will you get the full state pension? That’s the danger, many people think that they will, do all their budgeting, then find out they won’t get as much as they planned.
There’s still time to act. Just make sure ahead of time, you’re ready and know what’s coming.”
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.