This article is part of our Guide to Maximising Your Pension, helping investors build up the maximum possible pension pot – and turn it into the maximum possible retirement income.
Investing is never easy, whatever your age. While young professionals have to overcome the present bias to pass up on instant gratification for delayed reward, the rising cost of getting on the housing ladder and low wages, those in their 40s and 50s have the pull of two generations of dependents on their purse strings.
The so-called “sandwich generation”, aged between 40 and 59, more often than not have the double whammy of both children and ageing parents to financially support. With university fees ever rising and the cost of long-term care constantly changing, it can be easy to forget about the importance to putting away for your own future.
Women Hit by Triple Whammy
And it does not stop there for sandwich generation women either. According to Aegon, sandwich generation women face triple whammy of low private pension savings, low State pension and gender pay gap. Off the back of research conducted by the TUC, which found women who become mothers before the age of 33 earn 15% less than similar women who haven’t had children, Aegon added that 53% of women aged 40 to 59 will rely on their partner for financial support in retirement.
Kate Smith, Head of Pensions at Aegon said that while it came as no surprise that women’s pension savings are considerably less than those for males, worryingly more than four in 10 women in this age gap have not yet started planning for retirement.
“The sandwich generation are generally pessimistic about their ability to retire with a comfortable lifestyle, with only 19% feeling very or extremely confident. Reflecting this lack of confidence, 53% of women rely on their spouse or partner to provide financial support in retirement, and 34% of men share this view,” she said.
Take Advantage of “Free” Cash
With time ticking on to retirement, it is imperative to remember that medium term investment goals should be managed alongside your pension pot. The easiest way to build up a retirement nest-egg is through your workplace scheme, as every contribution made by the individual is matched by their employer and topped up with tax relief by HMRC. Even if you are not currently in employment you can still pay in a pension contribution of up to £2,880 a year and receive a 20% top up from the government giving you an annual maximum of £3,600.
But too many people are using ISAs to manage their long-term investment goals, and their easy-access nature could reduce your potential for a comfortable retirement. According to BlackRock’s latest Investor Pulse survey, Britons rely heavily on ISA products to help fund their retirement, with more than a third of ISA savers using them for that purpose.
Tony Stenning, Head of Retirement for Europe at BlackRock also revealed that 38% of ISA holders looking to retire in the next decade only save into cash ISAs, saying that despite ultra-low levels of inflation, because interest rates have been at a record lows for more than seven years cash savings are still subject to the gnawing effects of inflation.
Lydia Fearn, head of DC and Financial Wellbeing for Redington said that she liked the fact that you could not get access to you pension cash, as it removed temptation.
“While ISAs definitely have a place in your savings suite to help maximise the returns for short term investment goals, they should not be used in place of pensions,” she said.
Consolidate Your Pensions – Where Appropriate
This is a good time to review your pension savings strategy; chances are by the time you enter the sandwich generation era you have held more than one position with more than one employer. Smith says it is important to “keep track of all your pension savings and stay in touch with your pension provider. A good way of keeping track of your pension plans is to transfer them and keep them together under one roof.”
This is particularly astute if you have one pension plan that is outperforming another or if you, or your former employer are no longer contributing to a certain scheme and would rather self-manage the pot. A word of caution however – be careful to check the terms of your old pension, it may be a lucrative defined benefit scheme. These can be sold back to employers, but the cash now may not reflect the true value to your long-term provision in retirement.
