Recently, there has been much talk of a “Gender Pensions Gap.” Given that recent research from Prudential indicates that women retiring in 2009 can expect to receive a staggering £6,642 less in their annual pension than the average man, this talk seems unlikely to subside.
So, what are the reasons for this “Gender Pension Gap?”
When you are concentrating on running your own business it is easy to neglect your pension contributions as retirement can seem a long way off, and other priorities can often take precedence.
However, if you are self-employed it is even more important that you plan for your retirement as it is less likely that you will have access to occupational pension schemes.
Also, women are more likely than men to choose to take a career break to raise a family or care for elderly relatives. Research from the Association of British Insurers (ABI) highlighted that just 52% of women with children under the age of 5 are in employment compared with 88% of men.
Laith Khalaf, pensions analyst at Hargreaves Lansdown, says: “Part of the problem is that women do tend to be paid less than men, and in addition many give up work for several years to raise a family. This leaves a gap in their private pension contributions and can leave them financially weaker come retirement.”
In addition to the issues raised above, many women are suffering from a pension shortfall simply because they are not making adequate pension provisions soon enough.
Whether you are just embarking on starting your own business, concentrating on forging a career for yourself, raising a family or approaching your retirement age there are measures you can take to avoid losing out to the “gender pension gap.”
1. Making employer contributions
If you are a female entrepreneur running your own business it is possible to make gross employer contributions from the company into a personal pension, such as a SIPP (Self-Invested Personal Pension), for yourself, or indeed on behalf of your employees. The employer contributions are deductible as a business expense against the company accounts.
2. Continuing with contributions for non-taxpayers
Women who choose to take a career break to raise a family or care for an elderly relative should aim to ensure they continue with their pension contributions during this period, as this can go some way to reducing the “gender pension gap.” Individuals not earning an income can still make personal contributions of up to £2,880 a year into a private pension. The government then tops this money up (by up to £720 a year) allowing a total contribution of £3,600 to be made into a pension per annum. The exact amount of tax relief will depend on your circumstances.
3. Stakeholder pensions
Some women may neglect to make pension contributions as they feel they do not have enough spare income. In addition, some may find the topic of pensions complex and daunting. Stakeholder pensions provide a solution. Stakeholder pensions are obliged to accept minimum contributions from as little as £20. In order to qualify as a ‘Stakeholder’ pension, the plan is unable to apply charges of more than 1.5% per annum for the first 10 years of the plan, and 1% thereafter.
However, the low fees offered by Stakeholder pensions come at the price of investment flexibility; as often a stakeholder plan will only allow you access to a handful of a life company’s own managed funds.
4. SIPP (Self Invested Personal Pension)
A SIPP may therefore appeal more to women that want to take a more active role in planning for their retirement. SIPP’s offer you access to a large range of investments including (but not limited to) managed funds (unit trusts and OEICs), investment trusts, individual stocks and shares, exchange traded funds and commodities, gilts, corporate bonds and cash. The increased investment choice means increased investment potential, but remember the value of investments can go down as well as up.
The HL Vantage SIPP offered by Hargreaves Lansdown is the UK’s leading low cost SIPP. There is no set-up fee, no additional annual fee on most funds and cash, no fund dealing fees and no transfer-in fee. The HL Vantage SIPP also gives you the opportunity to manage your pension online allowing you to not only obtain valuations and read valuable investment research, but also giving you the facility to place deals and top up your account. This gives you complete investment flexibility and control over your pension.
Help is at hand
Hargreaves Lansdown has a specialist pensions helpdesk that is on hand Monday – Friday 08.30am to 6.00pm to answer any of your pension queries. Please email firstname.lastname@example.org to request a free SIPP DVD to be sent to you.