Did you know that women are more than twice as likely as their male counterparts to rely primarily on the State Pension? The average female annual salary in Ireland is €36,400 while the State pension is approximately €14,420. This is a difference of almost €22,000 annually, and 68% of Irish women intend to rely heavily on this income in retirement. Furthermore, did you know that a large majority of women also intend to rely financially on their partner in retirement? Although great strides have been made in recent years there is still a lot of work to be done to bridge the pension gap in Ireland. Women (according to the CSO) are expected to live 5 years longer than men, so why are we settling for pension pots that are around 22% smaller? Surely we should be pushing for larger pension pots than men to fund a longer retirement.
The gender pension gap is just as important as the gender pay gap, but doesn’t get the same attention. The reasons behind the pension gap have been researched extensively and mostly mirror the gender pay gap. The main reasons for both tend to be as follows:
Further to these reasons the pension gap is also heightened by other barriers to entry including lack of confidence, inertia and low knowledge base. According to the World Economic Forum women lag behind men in terms of financial literacy. This has a massive impact on women’s engagement with pensions and investment type products. It means women are less likely to start their own pension (unless it is provided by their employer) and also means women can sometimes take a more cautious approach to investing.
So how does this actually impact on women’s pensions? Firstly women do not engage at the same levels as men, unless the pension is provided by their employer. Secondly, women (generally speaking) are earning less and pensions tend to be calculated on a % of salary. Thirdly, women spend an average of 7 years less in paid employment in comparison to men. This means 7 years not contributing to a pension which would mean 84 contributions missed (for someone paid monthly). Finally women due to a lack of financial literacy sometimes do not fully appreciate the benefit of investing in higher risk funds over the longer term.
Start early – the earlier you start the easier the journey will be as you see the benefit of compound interest over time. What’s compound interest? Let’s say you invest €1,000 and this grows by 10% to €1,100 over the course of a year. Well now you are investing €1,100 and if this grows by 10% it will be worth €1,210. So you are not just earning money on what you have invested, but also on the growth earned in the meantime.
Don’t be discouraged if you are yet to start a pension – there is no such thing as too late to invest in yourself.
Discuss your finances with your significant other and agree how both of you can contribute equitably to your respective pensions. Take into consideration your salaries, affordability and how long until each of you retire. If you are taking time off to be a stay-at-home mother, a homemaker or caregiver or for any other reason what impact will this have on your pension, and how can this be minimised? Also remember that the €200k threshold for a tax-free lump sum is per person so balancing a couple’s respective pensions can be the most efficient way to manage your tax.
Discuss your pension provision with your employer. Can they contribute if they are not already doing so? If they are contributing can they pay a higher amount? Or is your salary meeting your expectations. Bear in mind that a pension is often based on % of salary – so if you feel you are not being paid enough then your pension is also being impacted.
And finally….
Don’t be afraid to ask questions or educate yourself online. Financial literacy among women is very important to me so please reach out to kate@olliemoranfs.com for friendly, non-judgemental explanations.
