Making Pensions Work for Women

Despite working for much of their lives, women often slip increasingly in to poverty in their retirement.

Pension planning is designed to provide a basis for long term saving that gives a comfortable life after retirement, but the system clearly does not work well for many women.

Retirement Age

The world’s first pension scheme was set up in the US in 1935 and the designated retirement age was set at 65 years old.

That’s why the magic number is still with us. The problem was in 1935 life expectancy was a lot less than now and the system worked well because people tended to live only a few years after stopping work.

Advances in diet, healthcare and changes in lifestyle have made such strides since then, life expectancy is much, much higher.

Scientists still have no idea of the greatest age a human body can live - so while lifestyle improvements continue, the problem is open ended and no one can predict just how many years they should make their financial plans.

It’s not unusual for more and more women to live to 100 or more - which means they have to fund a third of their lives in retirement.

Life Expectancy

According to the latest UK government statistics from 2007, the average life expectancy at birth for people born between 2005 and 2007 is 77.2 years for men and 81.5 years for females.

The figures also showed that men aged 65 then should expect 17.2 years - until they were aged 82.2 years and women should have a further 19.9 years to live, making the life expectation 84.9 years.

The Pension Gap

Increasing life expectancy and an increasing number of elderly in the population puts a strain on the money available to pay pensions.

In the UK, private pension holders are required to buy an annuity that pays interest on the sum invested - generally about 75% of a lifetime pension. The trouble is interest rates are now so low that an investment in annuity has to be huge to pay back a reasonable pension.

The Gender Trap

These problems are particularly acute for women. Often they rely on their husband to accumulate a pension pot, but the rules say that the annuity dies with him, so from the statistics above, it’s likely that a woman aged 65 in 2007 will live until to almost 2027, but her husband and his pension will have disappeared from her financial equation early in 2024.

Most women of pensionable age now do not have sufficient personal wealth to see them through their old age because they missed out on equal pay and the time to save because of the politics of the times they lived through and looking after children.

A recent global study by HSBC bank showed that only 11% of women over 60 from developed countries felt financially ready for retirement.

Pension Planning

Saving for retirement pretty much boil down to the same for men and women - except women should consider making a provision for living on without their husbands.

Financial planning is about conserving wealth, minimising exposure to risk and setting sensible financial objectives.

Starting a personal investment plan as early as possible should also be at the top of any financial agenda. Yes, a balance has to be maintained between paying the bills and the cost of living while young and probably bringing up children, but even a small amount invested for a long time is better than having no retirement income to fall back on at all.

Much of current retirement planning rests around the value of the family home - but this is precisely the asset rich, cash poor trap that women face and should plan to avoid.

Many women end up with a property worth a considerable sum, but cannot release any cash unless they sell and move because they have no income to support any borrowing.

Care Planning

Longer lives also bring other problems, like poor health, disability and the problem of self-sufficiency.

The odds are at the end of her life, an elderly woman will end up in a care or nursing home, and the costs can be a huge burden on an ordinary working family that can quickly eat up savings and assets, like the family home.

The Poverty Trap Solution for Women

No one has a magic wand that solves the problem, but good advice is to start planning for your retirement with a spread of small contributions in to low-risk investments.

Sound, professional financial advice and estate planning can make a real difference to many women’s lifestyle in old age.