Give up your old latte and build a pension pot of €900k!

Emer Kirk, chair of Connect Women in Pensions, shows how for as little as the price of a latte a day women can build a €900,000 pension pot to give a pension of €32,500 a year.

Last year the European Commission published a report, The Gender Gap in Pensions in the EU. It found that women receive pensions that are 39 per cent lower than men’s. The picture was a little better in Ireland at 35 per cent. This report considered total income received from all sources including state, occupational and private pensions.

There are two main ways that women can help themselves secure better pensions.

First, where circumstances permit, they should work longer. This will help them to secure the maximum contributory state pension which is worth €12,000 a year. This is a very valuable asset that is equivalent to a private pension pot of about €300,000.

Second, women should also contribute to a private pension, where possible. A 30 year old woman could accumulate a pension pot of more than €300,000 over 35 years for the price of a latte a day. If her employer contributes at the same level, the pot can rise to more than €600,000.

Combined, the private pension savings, the employer contribution and the contributory pension would give women a pot of more than €900,000 equivalent to a pension of €32,500 a year . There are two kinds of state pension, a means-tested one that is paid only to people in modest circumstances and a contributory pension that is paid out to people who have worked based on the number of PRSI contributions they make while in employment. This contributory pension is not means-tested. The Department of Social Protection’s Homemakers Scheme makes qualification for the State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme allows up to 20 years spent caring for children under 12 years of age or incapacitated adults to be disregarded when your social insurance record is being averaged for pension purposes.

Women’s participation in the labour market and supplementary private pension coverage have improved greatly in recent years, though female participation in the labour force in 2013 still amounted to only 53 per cent compared with 67 per cent for men, partly because many women work part-time and part-time workers are often not offered pensions

There are also gaps in levels of income derived from occupational pensions. In 2011, about 9 per cent of women’s average pensions income came from occupational pensions compared to 23 per cent for men.

Recent changes mean that people who are under 52 today won’t receive their state pension until age 68 even though they may have to retire at 65, making the need to bridge the gap with private provision even more important.

Of course, not all women will be in a position to work due to caring duties or the cost of childcare. If you are relying on your husband’s pension in retirement, make sure you understand what you can expect from it. Women should also ensure that any pension assets accumulated during a marriage are fairly divided between spouses in cases of separation or divorce.

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