Retirement planning for women

Women working on laptop

Women’s retirement income is 30% lower

Irish women typically retire on incomes that are more than 30% lower than their male counterparts. This is the same for women across the EU.

Every report you read suggests that women can’t catch a break in terms of retirement. Figures from global consulting company, Mercer, show 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!

Lower starting salary

Some of this income difference is because their starting salary was lower than their male colleagues. 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.”

This means 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 complacent about retirement income

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. To qualify for this you must have an average of 48 Class A, E, F, G, H, N or S paid or credited PRSI contributions. These must be from the 1979-1980 tax year to the end of the tax year before you reache pension age.

This average would entitle you 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.

Homemaker’s Scheme

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 does not go against you when calculating if you are entitled to a State Pension.

A homemaker is a man or a woman who provides full-time care:

  • for a child under age 12
  • an ill or disabled person aged 12 or over.

You can have up to 20 years of homemaking which will be taken into account when calculating your state pension.

Women still experience pay gap

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 – whether or not they have children!

On top of this, women are more likely to work in low-paid jobs meaning that they start saving and investing later. This is true even though life expectancy for women is four to five years’ greater than men.

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.

Women at home with children particularly vulnerable

Those who have stayed at home to look after children are particularly vulnerable. Many stay-at-home parents expect to rely on their spouse or partner’s income to see them through retirement. However, life is not always that dependable and circumstances alter.

Your partner may not be around by the time you retire. If you are relying on a spouse or partner’s pension in retirement, make sure you clearly understand how you can benefit from it.

For example, one spouse may buy an ‘annuity’ with their pension pot.  An annuity is a product that pays an annual pension income when you retire. If your partner is buying an annuity make sure you discuss and agree what pension would remain for you if your spouse or partner died.

Changes in relationships

Changes in relationships particularly after the age of 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 support from their spouse. This is particularly true if they have been a stay-at-home partner supporting the full-time earner.

Join company pension scheme

Those women who are in paid employment should be able to opt into a company pension paid by the employer.

The law says that if your employer does not offer you a company pension, they must offer you access to a standard PRSA (Personal Retirement Savings Account) – a type of personal pension.

With most company pensions, both the employee and the employer make contributions to the pension scheme. In some cases the employer will match the employee’s contributions.

This means that the more you save the more your employer puts in. Make sure to get the highest possible contribution from your employer!

Give advice to your daughter and granddaughter

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.

Working part time and job sharing

For a lot of women – both older and younger – working part time and job sharing is the reality. This means your income and pension are lower but it 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 someone working full time. If the part time work does pay well, try not to fall below €33,800 because you will no longer be 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, which means you:

  • are aged over 66
  • pass the means test
  • meet the habitual residence condition.

The current rate of Non-contributory State Pension is €11,804 – another scary number.

Women have to be more resourceful when thinking about retirement. First, 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.

You can 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.

You need to talk about your finances

Talking about finances can be awkward and women are sometimes to blame by avoiding the conversation. However, you need to keep yourself informed and to adopt a proactive approach – 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.