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Women's pensions: beware the gender gap

Tontine pensions can help women meet the challenge of financing their longer and more expensive retirements...

Women's pensions: beware the gender gap

Thinking about how we are going to sustain a reasonable lifestyle in retirement is something that’s worrying so many of us right now. But for women, concerns about how they are going to navigate their later years are particularly acute.

Smaller pension pots have to go further

Women are at a structural disadvantage when it comes to the long distance financial race of life. Lower-paying jobs and career breaks for maternity mean they give ground to men when it comes to saving for retirement. And with women living longer on average, their finishing line is pushed further back. In other words, women are having to make a smaller pension pot last for longer.

In its 2021 retirement report, UK financial services provider Scottish Widows has analysed the gender gap and assessed developing trends. 

Women saving more but is it enough?

The good news is that the adequate savings index for 2021 - a measure of how much people are putting by for their retirement in the UK - has seen the gap between the sexes close completely, with exactly the same proportion of men and women allocating either 12 per cent of their earnings to a pension or being a member of a defined benefit scheme. 

But will this be enough? Certainly not if you factor in the longevity differential. According to the research, the two to three years extra that women live on average could mean them having to accrue £50,000 more in savings, while the longer time that women statistically spend in care homes could add a further £35,000 a year to their outgoings at current rates. Frightening numbers. 

Adding further uncertainty into the mix is the mismatch of retirement expectations between couples. According to Scottish Widows’ survey, 21 per cent of UK women expect to rely on their partner’s income while only 34 per cent of men expect to have to support their partner.

Traditional annuities not the answer

The research suggests that the solution is for more couples to switch to a blend of a single annuity and joint annuity, which will give the woman greater income for longer by offering a degree of extra protection when her partner passes away. The problem with this strategy, however, is that it is just papers over the cracks. Annuities are notoriously poor value for money and incapable of covering those unpredictable and potentially ruinous care home expenses. They take no account of the reality of the growing challenges facing today’s retirees..

By contributing from an early age into a tontine pension, women will have the opportunity to purchase a retirement product that will remove the fear of running out of money and, softening the impact of divorce or bereavement, help make them independent from their partner’s finances. 

Tontines' rapidly rising income

The beauty of a tontine pension is that the income is not fixed, like a standard annuity, but dynamic. Because the benefits of other members of your pool are redistributed back to the tontine when they pass away, the income it generates has the potential to grow rapidly, even exponentially in the later years. These turbo-charged payments mean that when the potential for high healthcare expenditure is at its peak, a tontine pension is likely to have you covered. 

The hurdles facing women in retirement were actually the inspiration behind the founding of Tontine Trust. Our founder, Dean McClelland, learnt how lady golfers at his mother’s club constantly discussed their reticence to fully enjoy their retirement because they were petrified of running down their pension savings. He eventually developed a solution that liberated them from those worries by applying the proven 250-year-old tontine principle to create a retirement product that guaranteed a high and rising lifelong income, without costing the earth.

Tontines can bridge the gap for women

While Scottish Widows concedes that good progress has been made in closing the gender gap, it notes that tackling the inequalities in earnings and paying for social care are tough challenges that still need to be addressed: “The former requires reforms including better parental leave and support for childcare. The latter will in the short term require the government to shift more of the funds from recent tax rises into social care to close gaps in provision. Longer-term reform to savings will also help to provide a better basis for individuals to manage some of their (likely even higher) care costs.”

We agree that sponsoring ways for women to accumulate a bigger cash pot for their longer, more expensive retirements is vital. However, that could count for little if they don’t have access to a pension product that is better able to turn that precious capital into high and increasing payments for life, while also supplying the necessary financial firepower to meet spiralling care costs when they occur.

With a tontine you buy peace of mind, and that’s priceless.

2021 Women and Retirement Report



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