For women with a solid pension, retirement may feel like a solitary journey.
When your paycheck ceases, you might have the financial means to manage bills, indulge in occasional dining out, explore hobbies, and travel. However, what about your friends? If they don’t take proactive steps now to address pension disparities, you may find yourself celebrating alone.
According to OECD data from 2021, the average pension for women in Ireland is 26% lower than that of men. This gender pension gap can diminish the joy of retirement and complicate meeting living expenses.
While taking initiative with your pension won’t resolve the fundamental issues leading to this gap, it can enhance your ability to manage the situation.
Challenges Faced
Research highlights specific challenges that women encounter when saving adequately for retirement. As indicated by ESRI studies, women often bear a significant portion of caregiving responsibilities. This caregiving can lead to interruptions in their paid employment, resulting in reduced pension contributions.
The costs and accessibility of childcare, coupled with shorter school days, push many women into part-time roles, further impacting their salaries and associated pension contributions. In some cases, working women may even halt their pension contributions entirely to cope with caregiving expenses.
Additionally, the gender pension gap is intertwined with the gender pay gap. The CSO reported a gender pay gap of 9.6% in 2022, with average hourly earnings standing at €27.73 for men and €25.06 for women.
When employers contribute a percentage of salary to pensions, a lower salary equates to a smaller contribution.
Compounding the issue is the fact that women generally need their pension savings to last longer. The average life expectancy for women in Ireland exceeds 84 years, compared to 81 years for men, as per CSO statistics.
Discussing pensions with your friends won’t single-handedly close the gender pension gap; a collaborative approach involving government action, employer initiatives, and increased participation from men in unpaid leave is essential. However, awareness can empower women to take actionable steps.
Take Action Now
If you haven’t yet established a pension, now is the time to start, advises Laura Reidy, director of wealth management at Cantor Fitzgerald.
By reviewing your income and expenses and setting both short-term and long-term objectives, you can better prioritize your disposable income, Reidy suggests.
“Women often focus on immediate concerns,” she notes. “In my household, I manage the budget. Women frequently prioritize immediate needs like groceries and bill payments. It’s crucial to also consider long-term financial security.”
“If your job offers a pension scheme, participate in it,” Reidy encourages. “Employers typically contribute to employee pensions, and by not joining, you’re effectively leaving money on the table. It’s surprising how many people miss out on this opportunity.”
For instance, consider a woman earning €60,000 with an employer contributing 8% towards a pension. By not enrolling, she would forfeit approximately €4,800 annually.
Additionally, she would miss out on substantial tax relief on her contributions and the long-term growth of her pension savings.
“Make yourself a priority,” advises Kristen Foran, national sales director at Zurich Life. “When your employer offers a pension, say ‘yes’. The number of individuals who overlook this benefit is astonishing.”
As childcare expenses decrease and pay rises alleviate financial pressures, consider directing any additional disposable income toward your pension.
If your employer does not provide a pension or if you’re self-employed, consult a financial broker for guidance on suitable pension options and possible tax relief. Be sure to inquire about any associated fees before committing.
Upcoming auto-enrollment will not be a quick fix. It requires earning at least €20,000, meaning some part-time workers may not qualify. While opting in is an option, there’s concern that many may remain inactive and miss out on pension opportunities.
For those in the 40% tax bracket, contributing to a standard pension offers better tax relief than auto-enrollment.
Understand Your Financial Needs
Taking the time to evaluate your expected living costs in retirement can lead to more realistic financial planning and saving.
According to a KPMG report for the Pensions Council last year, a “moderate” lifestyle for a single individual requires an annual income of €27,600 and €37,200 for a couple. This figure reflects having some additional funds beyond the State pension.
For a “comfortable” lifestyle, a single person would need an annual income of €33,600 or €43,200 for a couple, providing leeway for leisure activities and travel, albeit without extravagant living.
What constitutes a “comfortable” income may vary for each person. Foran suggests that a target of around €40,000 (approximately €3,300 per month) for a single woman may be more realistic.
“I want my health coverage in retirement, the ability to dine out, shop, and pursue my interests,” asserts Foran. “Take a moment to map out what retirement will look like for you.”
Assuming a retirement age of 66 and receiving the maximum State pension of €289.30 weekly, you would require around €2,080 monthly from private pension sources to achieve an annual income of €40,000, she adds.
For someone currently aged 30, this translates to monthly contributions of €707, which dramatically decreases to a net cost of €424 for those benefiting from 40% tax relief.
Delaying pension contributions can result in needing to contribute even more to catch up later on. If you’re 40 years old, the monthly contribution climbs to €980 (or a net of €588 for higher earners).
At 50, this monthly contribution escalates to €1,603, which could effectively translate to a net of €962 under 40% tax relief.
Women participating in group pension schemes should consult their scheme’s financial advisor regularly to ensure optimal investment of their funds based on their retirement timelines, advises Reidy.
Managing Pension Credits
Taking time off work, or working reduced hours due to caregiving can influence women’s financial situations both now and in retirement.
“A major challenge for women arises during extended leave,” asserts Foran. “Ensuring you retain your PRSI credits during these gaps is essential.”
To be eligible for the State pension, a specific number of PRSI contributions must be accrued from the start of your career until retirement age.
Fortunately, you’ll continue accumulating these credits while on maternity leave, and you will earn them if you qualify for Parents Leave or take Parental Leave.
It’s essential that your employer communicates with the Department of Social Protection to register any weeks you have not worked, allowing you to accrue the appropriate PRSI contributions.
If you take Carer’s Leave and qualify for Carer’s Benefit, you will also receive these credits automatically.
Typically, if you temporarily cease working to care for a child under 12 or an older ill or disabled individual, the Homecaring Scheme could assist you in qualifying for the State pension.
It’s wise to check with the Department of Social Protection to ensure you obtain sufficient contributions. You can monitor your PRSI credits through MyWelfare.ie, provided you possess a verified MyGov ID.
Upon returning to work, making additional voluntary contributions can help offset any shortfalls in your pension savings, notes Laura Reidy.
Reality of Partner Pensions
If you’re not currently employed, it’s vital to acknowledge what a partner’s pension can realistically offer.
Foran mentions, “I frequently meet women who think, ‘my husband has a pension, so I’ll be okay.’ But pensions are individual. It’s a misconception that if your spouse has a pension, you automatically benefit as well.”
“You must prioritize your pension; it’s essential to take it seriously,” she emphasizes.
Her advice for women reliant on their partner’s pension is to gain insight into it and participate in the decision-making process, especially as retirement approaches.
“The pension fund could surpass the family home in value and directly influence your financial independence for life, so being well-informed is critical.”
In cases where the pension remains during the accumulation phase and the primary earner passes away, the funds should transfer to the spouse. Although there may be limits on what can be taken as a lump sum, whatever remains will usually provide an annuity (a lifelong income), thus preserving the benefits.
However, in situations where the main earner has already retired and passes away, the fate of their pension will depend on the structure of their benefits at retirement. If they secured an annuity, a spouse’s pension may have been included; if not, the pension may cease with the earner.
If the primary earner created an Approved Retirement Fund (ARF), this may be transferred to the homemaker upon their demise, allowing for flexible withdrawals.
“It’s feasible for one spouse to effectively save in a pension for both, intending to support both in retirement by establishing a spouse’s pension upon death or transitioning an ARF,” she adds.
Focus on Your Financial Future
Should you find yourself with extra resources—be it a work bonus, capital gains, or an inheritance—consider the long-term implications of your spending.
Investing surplus funds into home enhancements, for instance, could leave you wealthier in property but lacking in cash flow, potentially creating financial strain during retirement.
“Women often prioritize immediate family needs, yet it’s crucial to reassess your assets in terms of overall wealth,” mentions Foran.
“Many believe their largest asset is their home, but for numerous individuals, it’s their pension fund that should be prioritized. You need to take your pension contributions seriously if you wish to achieve a comfortable retirement,” she insists.
Saving in bank deposits might offer a sense of security, but Dame Helena Morrissey, an investment expert and founder of the 30% Club, cautions against the “recklessly cautious” reliance on such savings. Opting for pension investments instead can help counteract the financial disparities often faced by women.
