Bridging the Retirement Gap: Women Over 55 Face Unique Challenges
New research conducted by behavioural finance experts at Oxford Risk reveals significant disparities between men and women over 55 regarding retirement income, savings, and financial planning. The findings highlight an urgent need for tailored financial advice to address these challenges.
Retirement Income Disparity
On average, men over 55 expect an annual pension income of £23,700, compared to £18,000 for women—a gap of £5,700. While women plan to spend £3,500 less than men, many still face a shortfall of £1,200 annually. In contrast, men anticipate a surplus of £1,000 per year. This discrepancy reflects broader financial inequalities and underlines the importance of strategic retirement planning.
Savings and Uncertainty
The study also found that 36% of women over 55 are unsure about their annual pension income, compared to just 20% of men. Women’s average savings, at £128,000, significantly lag behind men’s average of £209,000—a difference of £80,000. These disparities exacerbate financial insecurity for women entering retirement.
Funding Retirement: Different Strategies
Men and women also differ in their approaches to funding retirement. Women are more likely to rely on part-time work (41%) and property income (21%) compared to men (30% and 18%, respectively). Conversely, men are more likely to depend on self-invested personal pensions (25%) and investment portfolios (23%) than women (16% and 10%).
Over-Reliance on Cash
Nearly half of women (50%) and 53% of men rely on cash surpluses to support their retirement. While cash provides emotional comfort, it often underperforms compared to investment options. This reliance on cash undermines efforts by regulators, such as the FCA’s Consumer Investments Strategy, to encourage smarter investment practices.
Expert Insights
Dr Greg B Davies, Head of Behavioural Finance at Oxford Risk, commented:
“Our research highlights significant disparities in retirement readiness between men and women. Women face unique challenges, including lower savings and greater uncertainty about their financial future. Advisers play a critical role in bridging these gaps by offering personalised strategies that empower individuals to optimise their retirement plans.”
Solutions for a Secure Retirement
Financial advisers have an opportunity to close these gaps by leveraging behavioural finance tools to deliver tailored advice. Tools like Oxford Risk’s proprietary algorithms can align financial strategies with clients’ unique goals and preferences, helping them make informed decisions about retirement planning.
At Pension Pathfinder, we are committed to addressing these disparities by offering comprehensive financial guidance tailored to your needs. Our team can help you optimise your retirement income, explore alternative funding strategies, and make smarter investment choices.
Contact us today at admin@pensionpathfinder.co.uk to learn more about how we can support you in achieving financial security in retirement.
Important Update on State Pension Back Payments
The Department for Work and Pensions (DWP) has issued a significant update on back payments for state pensions, highlighting progress in addressing historical underpayments identified through the Legal Entitlements and Administrative Practice (LEAP) exercise.
Key Developments
Approximately 119,050 pensioners have been identified as having been underpaid, with an average compensation amount of £11,905. This substantial figure reflects the impact of errors in pension entitlements spanning several years.
The DWP has categorised affected individuals into three groups:
Married women and those in civil partnerships (Category BL)
Widowed pensioners
Individuals aged over 80 (Category D)
Progress Update
Completed Cases: Payments for married women and individuals over 80 have been finalised, marking a significant milestone in the DWP’s review process.
Ongoing Work: The focus has now shifted to widowed pensioners, with the department committed to completing these cases by the end of 2024.
The review, initiated in January 2021, systematically examines pension records to identify and rectify underpayments. This structured approach ensures that those eligible for compensation receive their rightful entitlements.
What You Need to Know
The average back payment of £11,905 underscores the scale of the issue and the DWP’s efforts to resolve it. The department’s systematic review continues to make steady progress, and officials have reaffirmed their commitment to adhering to the established timeline for the remaining cases.
Are You Affected?
If you believe you may be eligible for back payments or have concerns about your state pension, it is essential to stay informed and take proactive steps. At Pension Pathfinder, we provide guidance and resources to help pensioners navigate their entitlements.
For more information or assistance, visit our website or contact our team today.
Contact Pension Pathfinder
Email: admin@pensionpathfinder.co.uk
Website: www.pensionpathfinder.co.uk
Nearly a Third Unsure How Much They Should Save into Their Pension
New research highlights a significant gap in financial planning among individuals saving for retirement. Nearly a third (29%) of people surveyed admitted they don’t know how much they should be saving into their pensions to ensure a comfortable retirement. This alarming statistic, revealed by Hargreaves Lansdown (HL) in a study conducted with Opinium, sheds light on the varying levels of financial awareness across different demographics.
Survey Insights
The survey, encompassing 1,400 individuals, showed diverse perspectives on the optimal percentage of annual salary to allocate toward pensions:
21% believe saving 6-10% annually is sufficient.
20% think contributions should range between 11-15%.
A notable 8% feel over 25% of their yearly earnings is necessary to secure retirement comfort.
However, 29% admitted they had no idea, with uncertainty spiking to 44% among those aged 55 and above, the group closest to retirement age.
Expert Commentary
Helen Morrissey, Head of Analysis at Hargreaves Lansdown, voiced concern over these findings:
"Many of us save into a pension every month, with no real thought as to what we need to get out of it at the end and whether what we are doing is enough. HL’s latest research shows that almost one-third of people have no idea how much they need to save to give them enough to live on in their retirement years."
Morrissey emphasized the critical nature of planning for retirement, particularly for those over 55 who are likely to encounter life changes, such as unexpected health issues, which could disrupt their ability to work.
Why This Matters
For younger individuals (aged 18-34), the uncertainty is less pronounced, with only 19% unsure about savings targets. However, this confidence often stems from time being on their side rather than a solid grasp of financial requirements.
Planning for retirement is not a one-size-fits-all process. As Morrissey notes:
"We all have different ideas for what we want that time to look like. For some, contributions of 8% will give them what they need, while others will have to do more."
Factors like mortgage or rental obligations, lifestyle aspirations, and unexpected life events all play a role in determining the ideal pension contribution.
The Call to Action
To address this gap in financial literacy and preparedness, experts recommend:
Regular Pension Check-Ins: Regularly review your pension to ensure contributions align with your retirement goals.
Professional Guidance: Consult financial advisors to create a tailored plan for your circumstances.
Early Adjustments: Starting earlier provides more flexibility to make smaller, consistent contributions over time.
Take Charge of Your Pension
Understanding your retirement needs doesn’t have to be overwhelming. By taking proactive steps today, you can ensure a comfortable and secure future. Whether you’re starting your first job or nearing retirement, a clear pension plan is essential for peace of mind.
For advice on pension options, transfers, and contributions, arrange a call with an advisor.
DWP to Offer Additional £101 Payment to Basic State Pension Recipients Over 80
The Department for Work and Pensions (DWP) has announced an additional payment of up to £101.55 per week for individuals aged 80 or over who receive a Basic State Pension of less than £101.55 or none at all. This payment aims to support elderly individuals with limited pension income, helping them manage daily living costs.
Key Details:
Eligibility:
Aged 80 or over.
Receive less than £101.55 in Basic State Pension weekly or no pension at all.
Have been a resident in the UK, Isle of Man, or Gibraltar for at least 10 out of the last 20 years, including the day before turning 80.
Payment Amount: Up to £101.55 weekly in the 2024–2025 tax year. The exact amount depends on your current Basic State Pension.
Example:
If an individual aged 80 receives £43 per week in Basic State Pension, their payment may be topped up by £58.55 to reach £101.55.
The Over-80 Pension does not rely on National Insurance contributions, making it an accessible option for those meeting the age and residency criteria. Applications can be submitted up to three months before the individual’s 80th birthday.
This initiative highlights the government’s efforts to address financial challenges faced by elderly individuals with limited pension income.
For more pension updates and personalised advice, visit Pension Pathfinder.
Can Married Couples Inherit Pension Pots Tax-Free After the Budget Changes?
Can Married Couples Inherit Pension Pots Tax-Free After the Budget Changes?
Recent changes in the Autumn Budget have raised many questions about the tax implications for married couples who inherit pension pots. Here’s what you need to know:
Key Changes Effective April 2027
Starting from April 2027, the way pension wealth is treated for inheritance tax purposes will change. Previously, defined contribution (DC) pensions were excluded from inheritance tax calculations. Under the new rules, certain unspent DC pension balances and lump-sum death benefits from defined benefit or defined contribution schemes will now count towards the value of the estate.
Current Inheritance Tax Allowances
Before delving into the impact of the Budget changes, it's important to understand the basic inheritance tax framework, which remains unchanged:
Nil Rate Band: Each individual has a £325,000 tax-free allowance. This allowance will stay fixed until at least 2030.
Transferable Allowance: Any unused portion of the nil rate band can be transferred to a surviving spouse, effectively doubling the allowance for a couple to £650,000.
Residence Nil Rate Band: If you pass your main home to direct descendants, you get an additional £175,000 per person. This means a couple could benefit from a combined allowance of £1 million.
Spouse Transfers: Assets passed to a surviving spouse remain inheritance tax-free, although this does not apply to unmarried partners.
How the Changes Impact Inherited Pensions
Even with the new rules, if you leave an unused DC pension to your spouse, it remains exempt from inheritance tax. However, your spouse will pay income tax on any pension withdrawals at their marginal tax rate.
When your spouse eventually passes away, their estate—including the remaining pension balance—will be assessed for inheritance tax. This will be calculated using any remaining allowances. The new process, however, adds complexity.
Navigating the New System
Under the updated system, personal representatives handling the estate must gather detailed information from all relevant pension schemes. This includes assessing the value of the pension and identifying beneficiaries. Representatives will need to use an online HMRC calculator to determine the inheritance tax due, which will then be split between pension providers. Only once the tax is paid can the remaining funds be released to beneficiaries.
This process is expected to be cumbersome and could cause delays, especially if pension administrators are slow to respond. With the new rules, it’s vital to be prepared for potential administrative challenges.
Looking Forward
There is still time for further consultation and refinement of these rules before their implementation in 2027. Ensuring that the process is manageable and efficient will be crucial, as families already face significant emotional and logistical challenges when handling a loved one's estate.
Autumn Budget 2024: Key Pension Tax Changes and Rising Employer Costs Demand Strategic Planning
31 October 2024 • 4 min read
The highly anticipated Autumn Budget delivered by the Chancellor on 30 October 2024 brought minimal changes to the pensions tax regime, despite weeks of speculation. Notably, the expected reduction in employer National Insurance Contributions (NIC) relief on pension contributions was absent, as were changes to the amount of tax-free cash available at retirement.
Key Announcements Affecting Pensions
Inheritance Tax on Unused Pension Funds
The most significant reform is the inclusion of unused pension funds (including death benefits) in a deceased person’s estate for inheritance tax (IHT) purposes, effective from 6 April 2027. Currently, such funds paid as lump sum death benefits through discretionary trusts are exempt from IHT. Additionally, lump sum death benefits paid from a pension scheme remain untaxed if the deceased was under 75 and the payments fall within the £1,073,100 allowance.From 2027, however, unused pension funds will be included in the estate and subject to IHT, aiming to ensure pensions are not used primarily for inheritance tax planning. Trustees and employers will need to review discretionary trust provisions and may need to amend pension scheme governing rules. The scope of the reform requires more clarity from the government, especially regarding its application to defined benefit pensions and standalone lump sum death benefits.
Increase to Employer NICs
Employer NICs will rise from 13.8% to 15% on 6 April 2025, with the threshold for NIC payments reduced from £9,100 to £5,000 per year until 2028. This change, though not directly impacting pensions, could drive significant cost increases for sponsoring employers.Employers might consider altering pension contribution rates, particularly if they provide contributions above auto-enrolment minimum standards, to offset the NIC rise. Additionally, salary sacrifice schemes may remain advantageous, but employers could decide whether to continue sharing NIC savings with employees or use them to cover higher NIC bills.
Implications for Employers and Trustees
The proposed IHT changes require careful assessment of current practices and may prompt a review of the death benefit provisions within pension schemes. Furthermore, the employer NIC increase might pressure businesses to reconsider pension generosity, potentially affecting members’ retirement savings adequacy. As discussions continue around auto-enrolment contributions, the government may face pressure to address the balance between employer costs and pension provision sustainability.
Employers contemplating changes should review the governing provisions of their schemes and contractual agreements to ensure compliance.
Autumn Budget 2024 Overview
Chancellor Rachel Reeves will deliver the new government’s first Budget on 30 October 2024. This Budget will focus on economic growth and investment, with goals to enhance public finances, spending, and tax policies.
The government has pledged not to raise the main taxes affecting working people. However, they may target tax loopholes or introduce wealth-related taxes to raise revenue.
With low productivity growth since the 2008 financial crisis, increasing output per worker is essential for economic resilience. Technological advancements like AI could aid growth, though challenges remain.
Merging multiple pension schemes
At any stage of your career, you may want to review how much you have saved in various pension plans and consider ways to manage them more efficiently. One method to achieve this is by consolidating your pensions.
Pension consolidation refers to merging most (or all) of your pension pots into one.
With multiple pensions, some funds may have performed better than others, though remember that past performance doesn’t guarantee future returns.
What Should You Look for When Reviewing Your Pension?
- Your pension pot’s current value
- A pension forecast (an estimate of future value)
- Where your money is invested and how the funds are performing
- The risk profile of your investments
- Annual management fees
- Statements summarising your pension’s performance