According to research published by Pensions Age, almost a third of savers expect to rely on their partner’s pension in retirement. Out of those asked, 39% of women and 23% of men admitted that they plan to lean on their partner’s finances when they are no longer working.
While there is a lot to be said for planning jointly when it comes to your finances, being reliant on a partner’s pension could leave you financially vulnerable were your circumstances to change.
So, read on to find out why it can be risky to lean on your partner’s pension, and what you can do to bolster yours.
Women tend to have to save more for their retirement than men
One of the biggest contributing factors to pension inequality is the gender pension gap. For decades, women have, on average, earned less than men and this also translates into a significant gap in pension wealth.
It follows that, if a woman has earned less in their working life, they will typically have paid less into their pension also.
According to research from the University of Manchester, women tend to have pension pots that are significantly smaller than their male counterparts. For those aged between 65 and 69, the median pension pot for men is more than £212,000, compared to just £35,000 for women.
A recent study published in FTAdviser found that young women will need to save an average of £185,000 more during their working lives to reach the same retirement income as men. This is partly due to women typically living longer, but also that women spend an average of 460 days in care homes, compared to just 100 days for men.
Relying on your partner’s pension may therefore not leave you with sufficient savings to maintain your lifestyle in retirement. Furthermore, this situation could be even worse if you were to separate.
Divorcing couples often don’t consider pensions in their proceedings
One of the reasons you shouldn’t rely on a partner’s pension is because you could often lose access to it in a divorce.
In 2000, the law changed to allow pensions to be shared on divorce. While there are approximately 100,000 divorces each year in England and Wales, figures suggest as few as 12% involve any sort of pension sharing.
The University of Manchester study found that the gap in pension wealth can be even more severe for divorced people. The median pension wealth of divorced non-cohabiting men aged 55 to 64 is £100,000 compared to just £19,000 for women in the same age group.
In around 50% of couples, one partner makes up 90% or more of the total pension wealth.
This is Money say that this is partly because women often prefer to choose the property over the pension when dividing assets, even though that decision can leave them worse off.
6 ways to boost your own pension
1. Start contributing as early as you can
Your pension benefits from compound returns. This means that any returns your pension makes can earn returns in the future too.
If you have a desired income you want to achieve in retirement, paying into your pension from age 25 means your monthly contributions will be a lot lower than if you started at age 45.
2. Increase your contributions alongside pay rises
If you are financially comfortable and you receive a pay rise or secure a higher paying job, consider using some of the extra income to increase your contributions. This way you can maintain your current standard of living while boosting your finances for the future.
3. Make the most of available pension benefits
Any contribution you make to your pension benefits from 20% tax relief if you are a basic-rate taxpayer. This increases to 40% and 45% for higher-and additional-rate taxpayers respectively. So, increasing your contributions also means you’ll increase the amount of tax relief you receive.
You can typically contribute up to £40,000 or 100% of your earnings (whichever is the lower) tax-efficiently into your pension each year. Make the most of this allowance.
Plus, making contributions while you’re still working means you get to benefit from employer contributions. If you increase your monthly pension payments, your employer might do the same.
4. Convert debt or loan payments to pension contributions once paid off
Paying off a loan can be liberating, and you may want to treat yourself for finally clearing the debt. Then, consider using the money you save through the loan being repaid to boost your pension contributions. This could help to make your retirement much more comfortable.
5. Use cash gifts as an excuse to top up your pension
Any unexpected cash you receive can be used to boost your pension as a one-off payment, especially if you don’t need to spend it urgently.
6. Speak to a financial planner
A financial planner can help maximise your pension contributions while also balancing other financial goals you may have in mind. We can use specialist tools to forecast how long your pension may be able to keep you supported, and ways in which to boost your fund.
For more information on how we could help you build up your pension, or for any advice surrounding your finances in retirement, please email info@investmentsense.co.uk or call 0115 933 8433.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.
