- August 9, 2019
- Posted by: Bob Champion
- Category: Latest
Equality in retirement is currently a hot topic. Not surprisingly retired men receive more income than retired women. There are many reasons for this and the situation is not going to change overnight.
We can legislate for equal pay and working conditions. Even then it takes many years to remove some of the differentials.
Retirement income is the consequence of what occurred over the 40 plus years preceding retirement. Retirement itself can then last another 30 or more years. If it was just about pay and working conditions then it could be 75 years before we see pension equality eradicated.
But it won’t, there are other issues at play that often work against women, but not exclusively.
I am a great fan of the current Lloyds bank “M word” advertisements. These encourage people to talk about, dare I say it, money.
Consider what the following 3 couples with unequal retirement income could talk about.
Geoff and Kamal
Geoff is a self-employed Carpenter and, in most years, earns around £40,000. He puts £4,000 a year into a personal pension. Kamal has spent most of her career working for the local council. She earns around £25,000 a year. They are both in their early 60’s.
If they were to retire at their state pension age Geoff could expect an income inclusive of state pension of around £13,000 a year. Kamal is expecting around £16,000 a year pls a retirement lump sum.
What are the M Word conversations they should be having? Their roles will be reversed in retirement, Kamal is going to become the main bread winner.
Nigel and Michelle
Nigel retired 12 months ago and took a tax-free lump sum of £150,000 on his retirement from his occupational pension which pays him £48,000 a year. With his state pension he is a higher rate tax payer. He also has a pension pot of £100,000 which he has yet to touch.
Michelle also has a pension pot of £100,000 and a full state pension. She is about to retire.
The M word conversations they should have will be about how they will keep their combined tax bills as low as possible for as long as possible. Depending upon the income they need, this means looking at the income Michelle can generate before touching Nigel’s pension pot. Is this retirement equality?
Consider, £20 spending needs a £20 withdrawal for a non-tax payer, a £25 withdrawal for a 20% tax payer, and £33.33 withdrawal for a 40% tax payer.
Pete and Tricia
Pete and Tricia are well into their retirement. When Pete retired, he took out an annuity that pays £12,000 a year but does not increase. They both receive state pensions but Tricia has no other pensions.
Tricia does not use all her personal tax allowance. Therefore, the first M word conversation they should be having is claiming the marriage tax allowance. This will reduce Pete’s tax bill by almost £20 a month.
The second M word conversation they need have is about what happens if Pete dies first. From a joint income of around £27,000 a year Tricia will have to live off her state pension of around £9,000 a year. Should they be saving for that eventuality? Would Tricia need to call on their housing wealth?
In each of these example couples there is a retirement inequality. However, they can achieve more retirement equality by having a M word conversation with both working together to improve their combined finances. In this blog we only have space to illustrate the M word conversations the 3 example couples may have. A subscription to Champion Retirement will help you identify the conversations you should be having.