Despite writing about personal finance for a living, I do not save into a pension. Many of my friends are surprised. “You don’t have a pension? But I thought your finances would be in shape!”
The truth is, like many mums who are self-employed and work part time (not to mention many financial journalists), saving into a pension has simply not been a priority. I do not have the benefit of a workplace pension with employer contributions, so the onus is entirely on me to set up a personal pension – something I have never got round to doing. There always seems more important things to spend money on – paying for a wedding, renovating a house, our one-year-old child.
Are pensions the best choice?
I also find the inflexibility of pensions off-putting. I would rather save into my stocks and shares ISA, where I can access my money at any time, rather than having it tied up in a pension where it cannot be accessed until at least age 55. A general perception of high management charges, poor investment performance, measly annuity rates and lack of flexibility have all tainted the pensions industry in recent years, which makes it easy for ordinary savers to become disillusioned and decide to simply not bother.
But what is the alternative? Unless you have other investments such as profitable buy-to-let properties, a pension probably remains the best way to save for retirement. A key advantage is that the Government tops-up your contributions via tax relief – so £1 in a pension pot only costs basic rate taxpayers 80 pence. And as of April 2015 pensions have become more flexible, allowing savers to cash in their pots from age 55 instead of being forced to buy an annuity.
However, you need to take into account the tax implications of cashing in your pot – you will be taxed for making withdrawals on all but the first 25% of your total fund. If you take too much in one tax year, you could lose 40% - or even 45% - to the taxman.
Despite the incentives to save into a pension, evidence shows women are missing out. Sadly, women who take career breaks, are self-employed or work part-time – usually after having children – risk becoming one of the grim statistics about the retirement ‘gender gap’. Not only do many mums not save into a personal pension, they may not even qualify for the full state pension, which currently requires 30 years of National Insurance credits, rising to 35 years for the full New State Pension from 2016. While their husband builds up a healthy pension pot – in his name, of course – many mums are left with no savings to call their own.
Self-reliance is key
The reality of this kicks in at retirement. Women retiring this year expect an average income of £14,000 a year, including the state pension and private savings, compared to men’s estimates of £19,000, according to a recent report by Prudential. Millions of women will be forced to work longer, or rely on family for financial support, to have a decent standard of living in old age. Sadly, too many make the mistake of relying on their husband for pension provision, only to find themselves divorced, widowed or simply without enough to live comfortably once they hit 65.
So if we cannot rely on the state or our husbands to provide us with a comfortable retirement, what should we do? The answer is simple and obvious – start saving now. So for my 30th birthday, which is coming up in a few weeks, I am giving myself a pension. I will open what’s known as a ‘low-cost Sipp’ (Self Invested Personal Pension) online.
While I cannot afford to make huge monthly contributions to my pension, I do know that investing something is better than investing nothing – and the earlier I start, the better. I do not want to rely on anyone, least of all my children, for financial support throughout my seventies, eighties and beyond.
No one has a crystal ball, but I hope in forty years’ time the decision to open a pension will have paid off.
This article has been commissioned by retiresavvy and any opinions voiced are the author's own.
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