Planning your retirement future.
Every report you read suggests that women can’t catch a break in terms of retirement. Global Consulting Company Mercer released figures in June of this year which shows that Irish women typically retire on incomes that are more than 30 per cent lower than their male counterparts. This is the same for women across the EU – so it’s not just us!
Some of this income difference is accounted for by virtue of the fact that their starting salary was lower than their male colleague. Typically, when offered a contract of employment to sign, the female’s reaction is one of, “Thank you very much” and she signs the contract. The male colleague is far more likely to say, “Thank you very much but I was hoping for a bit more”. In other words males typically negotiate a better starting salary where females do not. The pay gap is established at the get go and each and every percentage salary increase widens the differential!
Women can be complacent when they think about their income in retirement but the actual numbers are sobering. The full state contributory pension (formerly known as the Old Age Pension) amounts to €12,392 per annum providing the woman has an average of 48 Class A, E, F, G, H, N or S paid and/or credited PRSI contributions from 1979/80 tax year to the end of the tax year before she reaches pension age (66 currently). This average would entitle her to the maximum pension. If you don’t have some sort of private pension to top this up, trying to live on this amount is just about possible but it’s a tough ask.
Many women do not even qualify for the full state pension as they may have taken time out to look after children – in addition women often take on the role of carer for older relatives. This results in gaps in terms of PRSI contributions as well as losing out on the time to pay into a private pension. However, they may qualify under the Homemaker’s Scheme which came into effect on 6 April 1994. Time out of the workforce caring for children or a person with disability can be disregarded when calculating entitlement to a State Pension. A Homemaker is a man or a woman who provides fulltime care for a child under age 12 or an ill or disabled person aged 12 or over. A maximum of 20 homemaking years may be disregarded.
The ongoing pay gap between women and men is not just an RTÉ phenomenon. Plenty of surveys have shown that women doing the same work earn less than their male counterparts regardless of whether they have children or not! On top of this, women are more likely to work in low paid jobs meaning that they start saving and investing later. This is despite the fact that life expectancy for women is four to five years greater than men’s. Most retirement plans are based on the notion of 40 years continuous service which is now outdated even for men and was never very realistic for women.
Those who have stayed at home to look after children are particularly vulnerable. Many stay-at-home parents expect to rely on their spouse/partner’s income to see them through retirement. However, life is not always that dependable and circumstances alter. It is important that both partners have discussed the financial implications of pensions and annuities in the event of the death of the contributing spouse or partner.
Changes in relationships particularly post 50 can have serious impacts on pensions and income. Divorce whether initiated by the male or female partner usually has enormous financial consequences. Women need to be aware of their rights and entitlements with regard to pensions and spousal support particularly if they have been a stay-at-home partner supporting the full time earner.
Those women who are in paid employment should be able to opt into a company pension paid by the employer. By law, if you are not offered a company pension, your employer must offer you access to a standard PRSA (Personal Retirement Savings Account) which is a type of personal pension. Usually in the case of a company pension both the employee and the employer make contributions. The best outcome is where the employer matches the employee contribution so the more you save the more your employer puts in.
All of the above is a great and prudent idea if you are starting out or if you are lucky enough to be in a well-paid job with a company pension. If that’s not you, it may be your daughter, granddaughter or niece, so make sure to advise them to start saving early.
For a lot of women – both older and younger – working part time and job sharing is the reality. This results in a decrease in income and pension but is a decision many women take to look after family. As a part-time worker, you are entitled to the same access to a pension as a comparable full time employee. If the part time work does pay well, try not to fall below €33,800 as you are no longer paying income tax at the higher rate – and so you cannot claim pension tax relief at the top rate either.
If, you are now an older woman who for whatever reasons does not have a private pension and does not qualify for the state pension, then you may qualify for the non-contributory state pension. But only if you meet all the criteria: aged over 66; pass the means test; meet the habitual residence condition you may qualify. The current rate of state pension (non-contributory) is €11,804 – another scary number.
Women have to be more resourceful when thinking about retirement. First up, can you extend your working life for a little bit longer? The question of mandatory retirement at age 65 is now up for debate. If you can work for even a couple more years, if allowed, this can make a big difference. Can you generate some additional income? Do you have a second property that you can rent out? If not, the rent-a-room scheme might be an option. It is possible to earn up to €14,000 per annum tax free by renting out a room or rooms in your own house to private tenants – student anyone? Essentially, you need to come up with Plan B.
Talking about finances can be awkward and women are sometimes to blame by avoiding the conversation but keeping yourself informed as well as adopting a proactive approach is the best option – no more taboo. The RPCI discuss all of these financial and legal issues in full detail as a core part of their pre-retirement courses.
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Established in 1974, the RPCI is a Registered Charity, a not for profit organisation, wholly independent of all financial institutions and with a voluntary board of directors. RPCI is based at 14/15 Lower Camden Street, Dublin 2 Ph: 01 478 9471 / www.rpc.ie Courses are held in Dublin and around the country on a very regular basis. Please check the website for more details.
