In an industry where there is a high proportion of financial advisers that are male, we are lucky at Tarvos Wealth to have two highly qualified female advisers that can provide independent financial advice to our clients.
For this reason, advising women on retirement matters is a subject close to our hearts. There are a number of reasons why women should take retirement planning seriously and as early on as possible.
It is generally the case that women on average tend to save less into pensions than men resulting in sometimes significantly less pension income in retirement. The reasons for this might be:
- a difference in comparative salary levels.
- working part-time or taking career breaks to have children or care for older relatives.
- diverting income into other areas and priorities in the household.
Saving into pensions is not generally a priority at these points in time. However, by not making any contributions women will be missing out on important potential growth as well as the additional contributions available from workplace schemes and tax relief which all help to boost retirement savings.
At the other end of the scale, women in their late 40s / 50s who are starting to think about their futures may be in a position to try and make up for lost time.
With less disposable income going on children and possibly mortgages, it is worthwhile thinking about maximising savings into pensions or at the very least understanding the benefits of doing so. Having insufficient provision in place may result in working for longer or greater reliance on partner’s income, which can present problems.
Whether married or single, ensuring that a comprehensive review has been undertaken of circumstances at retirement is key. It is best to do this as early as possible of course. We regularly see women approaching us between 5 to 15 years before they plan to retire depending on the level of pensions and investments, they have in place already. This allows us to think and plan ahead providing some peace of mind to understand what income can be expected later on and what can be done to enhance this.
Our Retirement Income Planning service takes clients through a process of:
- understanding what they will need to spend in retirement on basic living costs;
- what they would like to spend on leisure and lifestyle factors such as holidays, days out, treats etc;
- analysis and review of existing pensions and investment arrangements including State Pension;
- discussing the options when retiring, whether gradually reducing work, retiring with part-time job or fully retiring;
- understand and plan for what would happen in the event of the death of a spouse or partner. This is particularly important if women rely on someone else, or vice versa for part of their retirement income provisions.
Ruth and Tracy have extensive experience working with those approaching retirement and also have broader specialist skills where circumstances such as divorce or bereavement have occurred. Financial planning support at these times can be invaluable, to ensure that the right decisions can be made for the future.
Christine (age 63) came to see me as she had retired from work during the pandemic and has spoken with Pension Wise who provided basic information and guidance on the options she has. She was advised to seek advice from an independent financial adviser to make sure she got the right advice for her situation.
Christine’s husband Mark still works part time and they had been living on savings for the last few months. She approached me for advice on buying an annuity.
I spent quite a bit of time with Christine understanding their situation including, their aims and aspirations for retirement, how they were planning to spend their time and some detail on the expected expenditure for the household and non-household. We covered their health situation and priorities in terms of their need for lump sums, income and understanding what would happen in the event of the death of the first of them. Inheritance tax and estate planning was also discussed, understanding what their wills included and what was important for them.
We agreed what their target income was and identified key spending goals to aim for – a big family holiday, a new car and their daughter’s wedding. We also agreed what level their emergency cash savings should be.
They had a variety of pensions and investments between them, so the first step was analysing these in more detail to understand what they offered and whether they were suitable to meet Christine and Mark’s needs.
It transpired that between them, they would have sufficient secure income to cover both their core living expenses and their expected lifestyle expenses, excluding big ticket items. The secure income was from two small occupational final salary pensions they had and the State Pension which would start in 4 years for Christine and 3 years for Mark. Mark’s final salary pension starts next year and Christine’s in 2 years so I was able to calculate the shortfall they would have between income and expenditure over the next few years until both State Pensions become payable.
In total the amount needed to cover this shortfall was around 25% of the value of Christine’s private pension. I explained to Christine the options available for this pension pot, including purchasing an annuity. It would be possible to buy a short term annuity to bridge the gap between now and when the State Pension starts, which will provide security but also a guaranteed lump sum at the end of that term. It would also be possible to put her pension into a flexi access drawdown plan and draw down each year the amount needed for their expected shortfall, which could be reviewed and flexed each year at our annual review.
Having been through the process with me of assessing their current situation, really looking at what their expenditure needs will be and understanding the options for taking retirement benefits allowed Mark and Christine to make their decisions based on all the relevant information.
More broadly, we were able to look at minimising tax. Their income tax liability reduced significantly by ensuring that no income tax would be payable until both state pensions started. We have also incorporated inheritance tax planning into their Retirement Income Plan which is reviewed to ensure that the potential liability on their death is understood and any planning implemented accordingly.