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Retirement – for some of us it feels like years away, for many others it can’t come soon enough. No matter what stage of your life you are in, if you aren’t already making plans for how you’re going to fund your golden years then perhaps it’s time to start thinking about it.
According to the Irish times, nearly two-thirds of women have found themselves with a much lower pension entitlement than expected. While reasons for this vary and the rule to qualify for a full state pension are complicated, factors such as working abroad, self-employment, being a stay-at-home mother or carer have had a huge impact.
The Irish Human Rights and Equality Commission found the gap between men and women’s pensions currently stands at 38%. However, the existing gender pay gap, along with the fact that a larger percentage of women work part-time or take career breaks due to family commitments, have resulted in women retiring on average with over a third less than men. These statistics show that many Irish women aren’t adequately prepared for when we do reach retirement.
Taking to the streets of Dublin, we asked women their thoughts on pensions and how they’d like to spend their retirement. Many of those we spoke to said they’d like to travel and enjoy their free time, but hadn’t thought about how they’d pay for this, with some having no savings at all.
How can women ensure they have an adequate pension?
From March 2018, the full state pension will be worth €243.30 per week for those under the age of 80 and €253.30 per week for those over 80. To replicate this in the private sector, it is estimated that it would cost somewhere in the region of €250,000.
How do I qualify?
To qualify, you’ll need to have a minimum of 10 years’ PRSI contributions (520 contributions), plus an average of 48 contributions per year if you want to get the full state pension. The average begins from the year of your first PRSI contribution to the year you retire. This is where many women have been disadvantaged by the system.
Those who take a career break, reduced hours or perhaps casual working hours, but return to full-time in employment at a later time, are (on average) at a greater disadvantage of those who began full-time employment later in life – say 40+. And, why is this? Well, because the former has made more PRSI contributions than the latter, but the substantial gap due to reduced working hours cuts their overall average contribution, and therefore what they are entitled to come retirement.
But it’s not great news for stay-at-home mammies.
In 2016, 445,500 women stayed at home to look after their families compared to just 9,200 men.
Fortunately, in 1994 the homemaker scheme was introduced which allows for up to 20 years to be disregarded from the calculations, so your average contributions won’t be negatively affected by this choice. Those claiming child benefit, carer’s allowance/benefit or respite care will be automatically entitled to this.
What if I’ve worked overseas?
If working abroad has caused a gap in your PRSI contributions, reducing your average annual contributions, you could find yourself entitled to a reduced rate of the state pension. This depends on where you worked and if you made social insurance contributions. These contributions will be considered as part of your eligibility, but only after your Irish contributions. You must have a minimum of 52 weeks of Irish insurance to be considered, however you still may not be eligible for the full rate.
What about the part-timers?
At present those who work as little as 4 hours per week on minimum wage are eligible for the full state pension. However, the threshold could change in the near future, requiring you to earn a minimum of €70 per week from part-time employment. From 2020, new entrants to the workforce will be auto-enrolled to the Governments new pension scheme based on total contributions rather than average contributions, which may reduce part-time workers benefits in the future.
…and the self-employed?
You will not be paying the PRSI contributions that will allow you to qualify if you earn less than €5,000 a year. However, those employed on a part-time basis qualify if they are earning just €1,976 per year.
If you do work for yourself, then it can be more difficult to claim state pension than for those working less hours in part-time employment. However, as a self-employed individual, you can opt into paying the PRSI contributions as a “voluntary contributor”, for just €500 per year you will retain your entitlement to a full pension. This threshold may change so it is worth keeping a close eye on to ensure you remain eligible.
Check if you have one!
Although not required, it is common for employers in both the public and private sector to contribute to supplementary pension arrangements. Depending on the type of pension scheme, your benefits may include a pension linked to your salary and service at the time of retirement. However, the most common approach is to base the pension on the total sum of contributions made by yourself and your employer to your retirement fund.
You will have the option to increase your contributions. Dedicating time to research if your current contributions will be enough for you and your family’s financial security, or if it is in your interests to increase your voluntary contributions is crucial.
Is it time for me to invest in a pension?
There are a number of areas of concern and a level of uncertainty about the current state pension system around how it may leave us vulnerable in the future. The Irish Human Rights and Equality Commission has expressed concerns that the law does not adequately protect workers who may face compulsory retirement before the State pension age which continues to increase. The commission also believes that the effectiveness of the state pension has been reduced due to lower electricity and fuel allowances and the rising cost of long-term care.
The government’s new auto-enrolment pension scheme is due to roll out for new entrants to the workplace in 2020. The new system, designed as a solution to the current situation, moves away from average contributions to total contribution. Industry experts have expressed concern about how this will work.
Only a third of women have a pension,71% are unsure how to start a pension and a staggering 41% of women believe they will still have to work at 70! The study also shows that men are more likely to have invested in a pension than women.
With the uncertainty surrounding the future of the state pension; what age in the future you will able to avail of it and what it will be worth to you by then, it is advisable to review your finances and work out what you can start saving. Especially if, like many of our interviewees, you intend to retire earlier in life, travel, and maintain your standard of living, a private pension is a worthwhile investment.