Women, retirement and pensions

Groceries - Photo by leonie wise

Women in Ireland have smaller pension pots than men

Women need to take action to avoid serious financial shocks in retirement

Women need to do what they can to boost their pension. This is true if they are a stay-at-home mum or a working woman – with or without children.

Unfortunately, many women won’t be able to afford the cost of their weekly grocery shop on the private pension they get when they retire. The average Irish woman is only saving enough to get a weekly payment of €40 per week, according to recently published research. Most of us would struggle to pay for the cost of weekly groceries with that money; in fact, it wouldn’t even pay for a meal out!

€40 per week is €2,080 per annum. The full state contributory pension (formerly known as the Old Age Pension) is €12,392 per annum. However, to qualify for this you must have an average of 48 paid, or credited, PRSI contributions every year. In total, this would bring your retirement income up to €14,472 a year or €278 per week.

This means that financial hardship has become a real prospect for many women in Ireland. Many women do not qualify for the full state pension as they stepped out of the workforce to look after children. This can make it more difficult for them to save enough into their pension.

Time out or a career break is time lost to contribute to their pension. They may also miss employer top-ups to their pension during these periods.

There are also thousands of Irish women who don’t have a private pension at all or have had several employments throughout their career and have a number of very small pensions as a result.

Women have less money to put away for pension

Many surveys have shown that women doing the same work earn less than their male colleagues, whether or not they have children! This makes them less able to make significant and meaningful savings into their pension.

On average, an Irish man will have saved twice as much as an Irish woman for his pension.

Women have less secure and stable income

In addition, many Irish women have been in low-paid employment where pensions have not formed part of their pay package. This leads to greater insecurity and instability for women. It also means they start saving and investing later than men.

As a woman’s life expectancy is 4 to 5 years greater than a man’s, inflation has a greater impact, further reducing their income and spending power in retirement.

It is important that every woman does what she can to boost her pension whether or not she has children.

Stay-at-home mum

Stay-at-home parents (mum or dad) find it particularly difficult to get a decent pension together. It is very difficult to save for a pension if you do not have an income. Many stay-at-home parents expect to rely on their spouse or partner’s pension when they retire, but this can be a very expensive mistake.

If your partner dies first

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.

Make sure pension continues if your partner dies

With many annuities the annual pension paid will stop once the person who bought the pension passes away. However, you can buy an annuity that pays a pension to an individual’s estate for a number of years after their death.

You can also buy an annuity that pays an annual pension to a dependant. Be certain that your spouse or partner chooses one – or both – of these options if you are relying on their pension.

Ideally, don’t rely on your spouse or partner for your pension. However, it can be difficult to do this if you are not earning any money!

Rental income

Rental income may be an option for you. The rent received from a second property (if you own or inherit one) could serve as a pension come retirement.

Similarly, under the rent-a-room scheme, you can earn up to €14,000 per annum tax free, by renting out a room or rooms in your own home to private tenants.

Working woman

If you are in a PAYE job and your employer provides a pension, it is a big advantage. 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!

Review your payments on every pay rise

You should discuss and increase the amount you save into your pension whenever you get a pay rise.

Maternity leave

If you go on maternity leave, ask your employer how you can maximise your company and state pension benefits while off.

Keep your pension credits going

If you are the named person to receive Child Benefit, your Social Insurance Contributions Record will continue. This is because any payment the state gives you is regarded as a credit towards your pension.

If you are not working, Jobseekers Benefit will also give you credits. When this benefit runs out (after 9 months unemployment), make sure to sign on for credits only, at your local Intreo Centre office. This will:

  • continue your Social Contributions Record
  • continue your social insurance contributions
  • increase the chances of you maximising your state pension.

Part-time worker

Many Irish women job-share or work part-time when children arrive. They take a hit in income and pension as a result. As a part-time worker, you are entitled to the same access to a pension as a comparable full-time employee, unless you are working less than one fifth (20%) of the normal working hours of the full-time employee.

Pension tax relief

If you consider working part-time or reducing your working hours, do your best to avoid your income falling below €33,800 per annum.

This is because if your income falls below this, you no longer pay any income tax at the higher rate – and so you cannot claim pension tax relief at the top rate either. You would then only get a 20% tax break on your pension contributions compared to 40% if your income stayed above €33,800.

Clearly it is harder to save for a pension if you are working part-time and on a reduced salary with less disposable income. However, you should get into the habit of putting something aside for your pension, no matter how small, from a young age. You can always increase the amount as your finances improve. If your employer offers a pension plan start saving into that plan. This is particularly important if the employer pays a contribution on your behalf.

State pension (non-contributory)

You may qualify for the Non-contributory State Pension if you:

  • are aged 66 or over
  • pass a means (income) test
  • meet the habitual residence condition.

The state assesses your ‘means’ or income under the following headings:

  • cash income, including income from work
  • value of capital, for example, savings, investments, cash on hand and property but not your own home
  • income from property personally used.

What is habitual residence?

The term ‘habitually resident’ is not defined in Irish law. In practice, it means that you have a close proven link to Ireland.

It also means permanence – that the person has been here for some time and intends to stay here for the foreseeable future.

You need facts to prove you are habitually resident. If you have lived in Ireland all your life, you will probably have no difficulty showing that you are habitually resident.

Once your right to live in Ireland has been established the following 5 factors (which have been set down in Irish and European law) are examined to find out if you are habitually resident in Ireland:

  • length and continuity of residence in Ireland
  • length and purpose of any absence from Ireland
  • nature and pattern of employment
  • your main centre of interest.
  • your future intentions to live in Ireland as it appears from the evidence.

The current rate of Non-contributory State Pension non-contributory is €227 per week or €11,804 per annum.