Pension income is being focused on more than ever these days as retirees struggle with modern issues. Pensions in previous decades were expected to fund retirement from the mid-fifties or sixties onward but this is unrealistic for the modern world. Retirements are lasting much longer due to increases in life expectancy and pension pots are quickly being outpaced by inflation.
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This is a particularly troubling issue for women who have long faced a wage and income gap when compared to men.
Countless reports and audits have proven that women, for a number of reasons, lag behind men in all areas of wealth.
The government acknowledged this themselves in a report from 2017 that examined the state pension age:
“Women have lower pension outcomes due to disadvantage they face in the labour market during their working lives, such as lower paid work or employment breaks due to caring (whether for children or older people).
“We believe that for future cohorts of pensioners efforts should be focused on addressing these root causes rather than trying to redress the balance at State Pension age”
Wealth for women and pensions specifically will be focused on as the upcoming budget is laid out.
Several experts and financial professionals have weighed in on what they would like to see from the budget. As Maike Currie, Investment director at Fidelity International, comments:
“With International Women’s Day falling just days before the Budget and scrutiny on the number of women in Boris Johnson’s cabinet, it’s important for the government to commit to changes that address the glaring gender wealth gap.
“Top of the list is the question around women and pensions. More needs to be done to close the gender pension gap.
“Women are more likely to have less income than their male counterparts in retirement, with 25% less in the first year alone. When longer life expectancies are taken into account, this leaves a substantial deficit to overcome.
“Women’s pensions, and access to them, need to reflect the differences in our working lives: women are still contending with the pay gap and have more fragmented careers, both of which has a significant impact on the amount they have in retirement.
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“And then there are the changes to state pension age – from 60 to 65 – and the financial knock-on effects that the WASPI Women continue to campaign against. Going forward, the government must adapt policies to ensure that women are better informed on how to safeguard their finances into retirement.
“The Budget will offer key insight into the government’s domestic agenda for the next five years. Commitment to changes which genuinely benefit women, particularly when it comes to their long-term finances, could set an important precedent.”
While it can be easy for many people to simply ask for more equality, setting up specific points to address can be more difficult.
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Fortunately, Maike outlined some specific actions that could be taken by the government:
A review of the limits to how much you can put into a pension each year and the ability to carry forward unused allowances
“‘Carry forward’ rules mean you can take forward any unused pension allowances from previous years, but you can only contribute as much as you’ve earned in a given year up to a maximum of £40k. Greater flexibility around these rules could help women make up for lost years of contribution – for example by having the ability to go back and make up contributions – that they missed out on due to taking time out of their careers to care for their family. Other possible interventions could include the funding of continued employee contributions based on pre-maternity leave pay and a pension credit for carers.”
Make lower earners more aware of how to utilise their personal allowances
“The government estimates that of the 1.3 million low-paid workers in the UK in 2016-17 who missed out on government top ups to their pension, 75 percent were women. The “net pay anomaly” disproportionately impacts women and there is a need for tax relief mechanisms to be harmonised.”
Reducing the auto-enrolment age
“Women are often better at paying into them during their 20s, by reducing the minimum age from 22 to 18 this gives women who have just entered work more time to pay in. The DWP proposed to do this in its 2017 Auto Enrolment review report by the mid-2020s. We call for this change to happen far sooner.”
Linking learning about pensions with the Department for Education
“Mothers at the school gate will be at the exact stage where they should be thinking about the financial future, so focusing on pensions within general financial education as part of the curriculum will help to expose children and parents to the topic and challenge the reluctance to discuss money.”
Fluidity around pension products
“Women value flexibility when it comes to pension saving, largely driven by the fact that we are often in and out of work with variable earnings and have a pension gap we need to make up. To start women could pay into a shorter term savings product, then moving their savings into a longer-term pension once the pot has been built up and they are reassured that they can afford to continue their contributions.”
Removing the “fear factor”
“There is a “fear factor” around not wanting to know how low your pension is. Introducing legislation to link pension dashboards to bank accounts would allow everyone to access all of their information on one app, normalising pensions and our awareness of them.”
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