Pension contributions: women (and men) could outlive their savings by many years
Most people will need to rely on their pension pots in order to live independently during retirement. However, a new survey shows that many – both women and men – could outlive their retirement savings by a good number of years.
According to a new survey, carried out by Vitality Invest, the risk of running out of money is more significant for women than for men, with women facing the prospect of outliving their pension pots by an average of 16 years. The research found that men face a pension funding gap of around ten years.
The survey suggests that the underfunding of pension pots places some women at the risk of poverty in retirement unless they increase their retirement savings now.
Another survey, the 15th annual Scottish Widows Retirement Report, is slightly less pessimistic, stating that the number of people saving enough for a comfortable retirement has reached its highest ever level, with almost three in five (59%) now saving adequately for the future. This is well up on the 55% recorded 12 months ago, suggesting April's auto enrolment contribution hike has had an immediate positive impact on saving habits.
However, the Scottish Widows report goes on to say that the proportion of people not saving at all for later life remains at 17%. It also found that more than a fifth of UK adults (22%) - or almost eight million people - expect that they will never be able to afford to retire.
Those who think they'll never be able to retire are more likely to have no pension savings at all (35% of this group, versus 26% national average), with over half (51%) expecting to rely solely on the State Pension in later life.
Hilary Banks, Director at Vitality Invest, said: "The Your Vitality Future Calculator throws into sharp relief the pension deficit the nation is facing with women. Our data shows that whilst men face a ten-year pension deficit, women face a significantly greater deficit of 16 years.
"Shockingly, this means that women will need to work for considerably longer than they would like in order to have enough money to fund their retirement. Women are particularly impacted because they have a longer life expectancy and may take time out of their career to raise children or elderly relatives. Teamed with the issue of the gender pay gap, the end result is that women accumulate a significantly smaller pension pot for retirement.
"But factors impacting both women's and men's savings include the tendency to be over-optimistic about the future and to prioritise today over tomorrow, favouring 'smaller-sooner' treats over 'larger-later' rewards.
"This is the same behaviour that keeps people from eating healthily, quitting smoking or exercising. When all this is coupled with an incorrect belief among people that they will spend less in retirement, the conditions are set for people to have to either work longer, or face the harsh reality of running out of retirement cash."
The best way to reduce your risk of running out of money in retirement is to construct and then regularly review a comprehensive retirement plan. A good starting point for many is to enrol in their workplace pension. However, they need to engage with the process, to begin to understand what they need to do to ensure that they save enough for a comfortable retirement and to ensure that they don't run out of money.
Working with employers, we can help employees build financial plans which include lifetime cash flow forecasts, designed to illustrate graphically when they might run out of money in the future. We can then provide advice designed to restructure income or capital, ensuring it lasts long enough in later life - and to avoid running out too soon.
For help with your retirement planning, contact Kellands Corporate today.