If you’re a woman with a good pension, retirement might be a lonely station.
When your pay cheque stops, you’ll have the money to cover bills, dine out now and then, pursue hobbies and go travelling more often, but what about your pals? Unless they take steps now to counter pension inequalities, you could be dancing on your own.
Women in Ireland have a pension that is, on average, 26 per cent lower than men, according to OECD figures published in 2021. That gender pension gap can make retirement less fun, and living expenses hard to meet too.
Being proactive about your pension isn’t going to fix the structural issues that cause the gender pension gap, but it could put you in a better position to weather them.
Barriers
Women can face particular barriers when it comes to saving enough for retirement, research shows. They shoulder a disproportionate responsibility for care, according to ESRI research. Taking that time out from paid work means earning less over the course of their careers, leading to gaps in pension contributions.
The cost and availability of childcare and short school days also force some women into part-time work, decreasing the salary to which employee and employer pension contributions are linked. Some working women are forced to stop pension contributions altogether to cover care costs.
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The gender pension gap is also linked to the gender pay gap. In 2022, the gender pay gap, measured as the average difference between male and female hourly earnings, was 9.6 per cent, according to the CSO, with mean hourly earnings for men at €27.73 and €25.06 for women.
Where an employer makes a percentage contribution to pension based on salary, the smaller your salary, the smaller that contribution will be.
To make matters worse, women’s pension pots need to stretch farther too. The average life expectancy for women in Ireland is more than 84 years – compared with 81 years for men, according to CSO figures.
Talking to your girlfriends about pensions isn’t going to solve the gender pension gap – Government policy, proactivity from employers and men taking a bigger share of unpaid leave is needed for that. But by being aware, women can take some action to counter it.
Act now
If you don’t already have a pension, start one, says Laura Reidy, director of wealth management at Cantor Fitzgerald.
Examining your incomings and outgoings and clarifying short-term and long-term goals can help you reprioritise how you apportion disposable income, says Reidy.
“Women tend to focus a lot on the immediate,” she says. “I look at my own household, I’m the budgeter. Women often look at immediate priorities like groceries and paying bills first.” They should zoom out so that their longer-term security is taken care of too.
“If you’re employed and there is a work pension, join it,” says Reidy. “Generally, the employer is offering to make a contribution towards your pension. If you are not in it, you are essentially losing out on salary. It’s still really surprising how many people do not take that up.”
Take a woman earning €60,000 where the employer offers a pension contribution of 8 per cent a year. If you haven’t joined the pension scheme, you’re leaving about €4,800 a year on the table unclaimed.
You’re also missing out on generous tax relief on your own contributions too, not to mention the compounding of your pension pot over time.
“Try to prioritise yourself a little bit,” says Kristen Foran, national sales director with Zurich Life. “When an employer offers you a pension, say ‘Yes’. The amount of people who leave that on the table is crazy.”
As early-years childcare costs recede and pay increases make monthly mortgage repayments easier, earmark any increased disposable income for your pension.
If your employer doesn’t offer a pension, or if you are self-employed, a financial broker can advise you on a suitable pension and help you get tax relief. Quiz them on charges before signing up.
Auto-enrolment, when it arrives, will not be a silver bullet. You must be earning at least €20,000, so some women working part-time won’t qualify. They can opt in of course but the fear is that inertia will win out and they will continue to miss out on pension provision.
Those in the 40 per cent tax bracket will get better tax relief by contributing to a regular pension than under auto-enrolment.
Know the numbers
Spending time thinking about how much you may need to live on in retirement allows you to be realistic about your future and save with that in mind.
A “moderate” existence for a single person means an annual income of €27,600, or €37,200 for a couple, according to a KPMG report for the Pensions Council last year.
“Moderate” in this case means having some extra money beyond the State pension.
A “comfortable” existence for a single person means an annual income of €33,600, or €43,200 for a couple, the report said. This means a bit more financial freedom, some travel and discretionary spend, but still not an affluent lifestyle.
A “comfortable” income feels different for everyone, but Foran says a figure of €40,000 [about €3,300 a month] for a single woman may be closer to the mark.
“I want my health cover when I retire, I want to be able to go out, do a bit of shopping, I want to have my interests,” says Foran. “Sit down and put pen to paper asking what it’s going to look like for you,” she advises.
Assuming a retirement age of 66 and entitlement to the maximum State pension, which is currently €289.30 per week, a monthly private pension of €2,080 would be needed for an annual income of €40,000 in retirement, she says.
If you’re aged 30 now, that means pension contributions of €707 a month, she says. Generous tax relief, especially for higher earners, makes this less daunting. In real terms, it would cost €424 a month for those eligible for 40 per cent tax relief, she says.
Start contributions sooner rather than later, or you’ll have to contribute more each month to catch up as the years tick on. If you are now 40, the monthly contribution rises to €980 a month – a figure that equates to a net of €588 for higher earners, she says.
If aged 50 when starting your pension, a contribution of €1,603 per month is needed. This could equate to a net figure of €962 for those eligible for 40 per cent tax relief.
Group scheme participants should talk to the scheme’s financial adviser regularly to ensure their money is being invested to best advantage based on their time to retirement, says Reidy.
Pension credits
Taking leave from paid work, or working part-time due to caring responsibilities, affects women’s financial wellbeing now and in retirement.
“The biggest challenge I see for women is when they take leave,” says Foran. “When there is a gap, make sure you have your PRSI credits there,” she says.
To qualify for the State pension, you will need to have accumulated a certain number of PRSI contributions between starting work and reaching pension age.
You continue to get these credits while on maternity leave. You’ll get them if you take Parents Leave and qualify for Parents’ Benefit, and also if you take Parental Leave.
Your employer must, however, write to the Department of Social Protection, setting out the weeks you have not worked, so that you can get those credited PRSI contributions.
If you take Carer’s Leave and qualify for Carer’s Benefit, you also get credits automatically.
In general, if you stop working to care for a child under the age of 12, or an ill or disabled person aged 12 or over, the Homecaring Scheme can help you qualify for the State pension.
Check with the Department of Social Protection that you have sufficient contributions to qualify, and to let them know you want to be registered for the scheme.
You can always check your PRSI contributions at Mywelfare.ie provided that you have a verified MyGov ID.
If you return to paid work, additional voluntary contributions can help bridge private pension gaps if you can afford them, says Laura Reidy.
Partner pension?
If you’re not in paid work, be realistic about what a partner’s pension can provide.
“I speak to women who say, ‘my husband has a pension, so I’ll be grand',” says Foran. “But pensions are for individuals. There is a myth that if your husband has a pension, you automatically have one too, but you don’t.
“Pension has to become an individual priority; you have to take it seriously yourself,” she warns.
“My tip for women who are dependent on their husband’s pension is to ensure that they understand the pension and get involved in decisions about it – particularly at drawdown on retirement age,” says Foran.
“The pension fund could be a bigger asset than the family home and will impact their financial security for the rest of their lives, so knowledge is hugely important here.”
If the pension is in accumulation phase and the earner dies, the value should go to the spouse. There can be limits to the amount taken as a lump sum, but in those situations, any residual fund would be used to pay an annuity (an income for life) so nothing is lost, says Foran.
If the main earner has already retired and dies, what happens to their pension depends on how they took their benefits on retiring, she says. If they bought an annuity, they could have built in a spouse’s pension to be paid after their death – but they may not have done this, in which case the pension may die with the earner, says Foran.
If the main earner sets up an Approved Retirement Fund (ARF), a type of investment vehicle, this can be transferred to a homemaker’s name on the earner’s death and the homemaker can withdraw money whenever they want, says Foran.
“It may be the case that one spouse effectively saves in a pension for both of them with the intention of providing for both in retirement by setting up a spouse’s pension on death, or transferring an ARF,” she says.
Prioritise yourself
If you have some extra income, a work bonus, shares or an inheritance, spend it with future you in mind.
Sinking spare cash into home improvements, for example, instead of feeding your pension fund can leave you house rich but cash poor and with tight living expenses in retirement.
“Women can look at the here and now and prioritise family, but look at your assets in terms of what you actually have,” says Foran.
“Everyone thinks their biggest asset is their house, but for a lot of people, it’s their pension fund that needs to be a bigger asset,” says Foran. “You need to take pension contributions seriously if you want to have a comfortable retirement.”
Likewise, saving money on deposit can feel like security, but women’s dependence on savings in bank deposit accounts is “recklessly cautious”, according to investment expert and founder of the 30% Club, Dame Helena Morrissey. Investing in a pension instead of deposits can help mitigate the financial disadvantages women experience.
