What women over 40 should do for retirement

James Cridland of Coleridge Wealth Management in front of Clevedon Pier and beach

James Cridland of Coleridge Wealth Management - Credit: Coleridge Wealth Management

The gender pay gap often hits the headlines, but we also need to address the lesser-known problem of the ‘pensions gap’ between men and women. Women tend to retire with pensions far smaller than those of men, which is largely a result of their lower average earnings, as the pay gap still stands at 15.5 per cent1

Since most people save a percentage of their salary for retirement, earning less means saving less too. Combine that with higher rates of part-time working among women and breaks from paid work to focus on families, and it’s clear why many women have to work harder to ensure a comfortable retirement. 

Higher earners and those without children can also fall into the gender pensions gap, and we have worked with many women whose focus on their successful careers means their own finances take a back seat. 

The earlier you begin planning and saving for retirement, the better. But if you find yourself mid-career and unsure of whether you have enough set aside for retirement, all is not lost. You can still ensure your plans catch up with your dreams, but you might have to do things differently. 

Identifying your goals 

You need to take the same rigour that you’ve applied to your career and put it towards your retirement planning – but this doesn’t mean you have to become a pensions expert overnight. Seek pension advice from a financial adviser who can give you clear, accurate financial goals and tell you what to do to help achieve them. 

You will need to share with the adviser details of which pensions, if any, you have. The adviser can help you understand what type of schemes you’re in, which could be Defined Contribution, Defined Benefit, or a small, self-administered scheme, and what you would be entitled to in retirement. 

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Your adviser will also need to know what other assets you have, including ISA savings, premium bonds, investments, property and if you own a business, its potential value. 

Spend some time thinking about what kind of future you want. Would you like to aim for a hard stop from work at a set age or do you hope to keep working in some capacity? Do you have plans to start a new venture at a later stage? Or perhaps you want to move abroad – in which case there are specific tax implications to consider. 

Different ways of funding retirement 

Once you have answers to the questions above, it then becomes easier to understand the financial goals you need to hit. There are a range of assets you can use to fund retirement, and each comes with its own pros and cons. 

1. Pensions 

Most people are allowed to put a maximum of £40,000 per year into their pension or 100 per cent of their earnings if less (although there are rules around this for higher and lower earners, so check with your adviser) and receive tax relief on top. 

Ensure you are putting as much as possible into your pension, but be wary of the lifetime allowance, which is a limit on how much an individual can build up in pensions without incurring a tax penalty – currently £1,073,100. There are tax penalties for going above the limit, although in some circumstances you may be able to apply for ‘protection’ against the charges. 

If you have one or more pensions, it may be worth consolidating them into one pot to save on charges. ISAs and other portfolios of investments can also provide income in retirement if they are invested effectively. 

2. Property 

Many people aged 40 and over don’t have big savings goals, such as a deposit for a home or a wedding. 

At this stage, you may be able to channel more of your income towards paying down a mortgage or purchasing an additional property, which could be rented out and provide an income stream in retirement. 

Planning to downsize into a smaller home at a later stage could be another option, potentially leaving you with a lump sum to help fund retirement. 

3. Businesses 

Many entrepreneurs put everything they have into their business and hope that it could be sold one day to fund retirement or provide an annual income. These may be viable options, but it’s important to be realistic about how much your business is worth today and its potential future value. 

It’s a good idea to have a range of assets to support you in old age, so it’s worth exploring with an adviser whether you should take some of your savings and invest them elsewhere. 

If you would like to plan for retirement, we can help guide you through the process – please get in touch. 

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Coleridge Wealth Management on 01275 430024 or email coleridgewm@sjpp.co.uk. 

Your home or other property may be repossessed if you do not keep up repayments on your mortgage. 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

1 Gender pay gap in the UK: 2020, Office for National Statistics, November 2020