Why Women carry the biggest risk of living in poverty in retirment

by Bob Cook

For many years women have suffered a significant detriment when it comes to building up a private pension income.  They will typically have lower lifetime earnings than men coupled with less opportunity to save into private pensions.

It was at one time normal for a woman to spend more years at home caring for children, and were lower paid if they worked, likewise occupational and private pensions have historically discriminated against women. For example, it used to be legal for employers to require women to leave the scheme as soon as they married and part-time workers were excluded. Again at one time women formed the majority of the part time workforce.

It is to our shame that the state pension system has also discriminated against women – particularly older women.

Although, over the years, the relative disadvantages for women have slowly been removed, it is the youngest women who will have benefited most from the changes.

As an example, many older women were encouraged to pay what was called ‘married women’s stamp’ when they were working. This involved paying lower National Insurance contributions but also meant that they had to give up their state pension rights. This meant that they can only claim a pension on their husband’s National Insurance (NI). The short term benefit of a reduced National Insurance contribution in no way compensated for the income lost in retirement. A period when additional income could be most wanted.

Irrespective of the European Gender Directive, it is a statistical fact that women live longer than men. This results in increasing numbers of older women who are single and have no partner’s income to rely on. The fact that women’s life expectancy is longer than men’s and also that  women tend to be younger than their husbands, means that they are often left widowed at the end of their lives.

Our modern lifestyle has also resulted in a steady decline in marriage and an increase in divorce among older couples, once again leaving increasing numbers of single older women.

The ability to arrange pension sharing on divorce does go some way to reducing this problem, but the oldest women are least likely to have been able to take advantage of that. Even women who stay married and whose husbands made prudent investment and pension saving decisions, are often left without any retirement income once their husband dies.

Women who were married to men who were members of employers final salary pension schemes fair much better.  These schemes must pay a widow’s pension which is typically half of the income that would have been paid to the husband. If the husband had a personal or stakeholder-style pension, then there is a risk that the pension dies with him.  These pensions are usually converted into an annuity in retirement. In order to obtain the highest income the husband may choose to buy the annuity on a single life basis. This would mean that his wife would receive no income whatsoever after his death.

It is a justified criticism of our pension system that many people do not understand how annuities work. Many older women are left without any money from their husband’s pension because all the money that has not been paid out in income stays with the insurance company when he dies. The team at Best Pension Annuity provided clear unbiased information to customers about how annuities do work, using simple uncomplicated language. They are also happy to provide numerous quotes on various basis (single life, joint life etc) so the customer can make an informed decision about the annuity that best meets their needs.

If a couple buy a ‘joint life’ annuity then the income they will receive will be less that had they bought an income in the name of the husband only. However the income from a ‘joint life’ annuity is guaranteed to be paid until both partners have died. The amount of the reduction will depend who much of a surviving spouse’s pension is required. If a husband wants his wife to have exactly the same income as he received while alive, the annuity will suffer a bigger reduction than the husband who selects a 50% benefit for his partner. Many couples consider these reductions a price worth paying as the implications of buying  a ‘single life’ annuity could leave their partner, typically older women, unprovided for in the later years..

Changes over the years have gradually improved women’s position and allowed them to accrue better state pensions.

Years spent caring for young children or other relatives are now credited for NI and the number of contribution years required for a full state pension reduced. However, the most radical change is yet to come, which should ensure state pension entitlements for men and women will eventually be equalised.

The government has proposed a flat-rate state pension of around £144 a week for anyone with 35 years of NI credits or contributions. The new system will only apply to new pensioners, not to those already retired, but should eventually significantly improve older women’s pensions.

However there are many things Women can do to reduce the risk of them living in poverty in later life.

Nobody should rely on another person to create a retirement provision for them .

Make sure you and your partner fully understand annuities, income drawdown or whatever retirement product you buy before committing to a contract to which you are bound for life.

A chat with the team at Best Pension Annuity should better enable you to understand the various features focused on protecting a spouse, so you can decide what is important to you.

If you at all uncertain you should take financial advice.