Purse Strings: Don't expect your partner to pay your way in old age, says Kara Gammell . Women need to start saving into a pension now, even if retirement does seem a long way off, and it doesn't have to break the bank.
Saving for retirement. It's not much fun, it’s certainly not very sexy and for most of us, it seems a long way off. And as a result, nearly a third of women are neglecting to save into a pension .
We all know that we have to save something for when we hit old age, but right now many young women are doing a delicate financial juggling act with student debts, sky-high rent and below-inflation pay rises - all while trying to scrape together enough money to get on the property ladder. So, while we realise having a pension is important, many of us women feel that we have enough financial issues that need dealing with today and let’s face it, adding to a pension often takes a back seat.
= Why expect your partner to pay your way? =
What’s worse, according to recent figures from Scottish Widows, 43pc of us women rely on joint savings to ensure security in retirement . In other words, we expect our partners to pay our way in old age. To me, this seems ludicrous, as most of the women I know would never expect someone else to pay our bills, so why do we think it is okay to do so later?
And as if that wasn’t bad enough, statistics prove that this is hardly a foolproof plan anyway. According to figures from the Office for National Statistics, one in three marriages in the UK now end in divorce by the fifteenth anniversary. And while pensions are legally required to be taken into account in divorce settlements, it is often overlooked.
We are living longer and are likely to spend decades in retirement, but there is one thing about old age you can’t ignore, and that is the fact that you will actually get old. At some point, we will no longer have the ability to go out and earn more money so what you have saved during your working life is as good as it is going to get.
= You have to be strict about your current spending =
So, how do you save enough to avoid being forced to spend your seventies much like you spent your struggling student days? It’s pretty simple: You have to be strict about your current spending and try to save as much as possible.
And it pays to get cracking as the sooner you start the better - thanks to compound interest. This is especially important for women, as they must start saving more money earlier in order to receive the same pension income in retirement due to the fact that we live longer than our male counterparts.
But how much is enough? Will saving for the far and distant future break the bank? Not necessarily.
Nest egg: Saving for the far and distant future doesn't have to break the bank.
According to Hargreaves Lansdown, a good rule of thumb for both men and women should be to save a proportion of their salary equal to half their age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15pc of your salary, including any employer contributions, throughout your working life. If you start at 24, saving 12pc of your salary a year should produce a similar return.
But, bear in mind that this does not take career breaks into account, so women must aim to boost this sum by maintaining pension contributions even when not working and, if possible, make voluntary National Insurance contributions after returning to work to make up the shortfall. Women on maternity leave should also check their work contract, as employers should continue making contributions for at least the first 39 weeks of leave.
This is crucial for women as the single biggest reason for many women being worse off in retirement is that most stop paying into a pension when they leave work to start a family. And for many women, it becomes financially prohibitive to make up this shortfall when they return to work, particularly as figures from Scottish Widows indicate that more than seven in 10 women return to lower-paid part-time jobs once they have children whether due to changing positions or a reduction in hours. And it is not just the kids you will be looking after many of us will end up as carers later in life, which will further limit our savings options.
So the first step is to look into your work pension plan. Under the new auto-enrolment scheme, which came into effect last month , you may have already been signed up in the last few weeks so long as you work for a company that has more than 120,000 employees.
As time goes on, smaller firms will start enrolling staff. Firms with fewer than 50 workers will not start enrolling their staff until June 2015 at the earliest.
If you haven’t been enrolled yet, there’s no time like the present. Contact HR and ask to join the pension scheme. If you don’t, you miss out on what is essentially free money from your employer each month, as they will add to your fund on your behalf. You wouldn’t turn down a Christmas bonus, so don’t pass up free pension contributions.
Telegraph Wonder Women wants to hear what's on your mind when it comes to money. Are you perplexed by pensions, enraged by energy bills or confused by childcare costs? Email your questions or comments to email@example.com with 'Purse Strings' in the subject line and we'll consider including them in future columns.