Women need to be Engaging with their Pension Pots



Posted on: 12th April 2018

The issue of women saving less than men for their pension is a problem the financial services has been aware of for many years. However, being aware of the problem is one thing; fixing it is another. If the abundance of research on the problem of financial disadvantage demonstrates anything, it is that whatever anyone might say, there is no simple solution to this ongoing problem.

Increases to minimum auto-enrolment contributions

The government has tried to address some of the problems around pensions with the introduction of auto-enrolment, and it is widely acknowledged that auto-enrolment has brought more women into the pension system. However, women are still at a financial disadvantage, so from April 2018 there will be phased increase to minimum contributions to improve the retirement outcomes of women.

Fidelity International head of pensions’ product, Carolyn Jones, says the contribution increases to auto-enrolment will be helpful and will go some way to improving retirement outcomes for women.

However, she also believes that even paying these increased minimum auto-enrolment contributions will not necessarily solve the problem as they will not provide an income sufficient to live on when inflation is considered, and points out that many women do not understand how the lower earnings limit, where the first £5,876 of their earnings do not count when calculating auto-enrolment contributions, can affect their final pension. Nor do they really appreciate how the lower earnings limit restrictions impact the lowest paid hardest.

However, Standard Life head of pensions’ strategy, Jamie Jenkins, believes changes announced in the 2017 Auto-enrolment review will help:

‘The removal of the lower earnings limit will be of most benefit to lower paid people, where there are a greater number of female workers, as more of their earnings will be counted in calculating contributions,’ he said. ‘In addition, it will remove the inherent unfairness for people with multiple jobs, where their earnings would be discounted for each. Again, the majority of people in this position are women.’

What about the women who are not eligible for auto-enrolment?

A significant number of women fall outside the auto-enrolment system, such as the self-employed and part-time lower earners. How can the government and financial services sector help these women? State Street Global Advisers senior relationship manager, Sophie Ballard, told Money Marketing:

‘We have to work as an industry to address ways of helping currently excluded groups and to raise awareness of the impact of this potential loss in pension savings.’

‘Ways to do this could include more robust resources and toolkits for employees to increase education and understanding; carers’ ability to earn credits for auto-enrolment, and student loan payments and childcare voucher payments should default into pension payments once no longer required,’ she added.

Sanlam UK head of employee benefits, Elliott Silk, says the [financial services] industry also needs to promote the fact people can opt in to auto-enrolment and qualify for an employer contribution if they earn between £5,876 and £10,000. If they earn less than £5,876 they can still opt in, but the employer is not obliged to contribute.

State Pensions

The state pension is undoubtedly the cornerstone for many women in retirement. Financial advisers universally agree that mothers who are not in paid work because they are bringing up children need to protect their state pension records. However, since the introduction of the high-income child benefit tax charge, many mothers are not now claiming and are missing out on their National Insurance credits.

Steve Webb argues that the Government should look to implement data-matching techniques to track down the women who are missing out and make sure they get these vital credits. Jamie Jenkins has suggested that perhaps it is time the child benefit tax credit system was changed to an opt-out basis.

Are broader solutions needed to finally address the issue of inherent financial disadvantage?
Author of the Insuring Women’s Futures report, PwC insurance partner, Jane Portas, believes Auto-enrolment is only part of the solution for improving women’s retirement prospects in the context of greater financial resilience, as the issue is bigger than insurance and financial planning.

She believes it is not enough to address the symptoms around disadvantage: what is needed is a broader solution which addresses the root causes of financial disadvantage women face throughout their lives. For that to happen there needs to be a collaborative approach between the financial services industry, the Government, the regulator and employers.

Select a pension marketing manager, Sarah Jones, says its research has found that women who receive advice are better off than those who do not. However, it also found that advice alone is not enough to fix the problem. She believes that culture change and role models are also necessary, as these can have a profound impact when it comes to influencing behaviours and attitudes.

Planning your finances around your pension may seem difficult, but you are likely to get more from your retirement if you have a team of professional advisors by your side. Contact Haven IFA today for more information.