Women must rethink their pensions

If you're a woman, you are more likely to spend your old age in poverty than if you're a man. The reasons are obvious: women in general work for fewer hours over a lifetime and do so for lower wages. That's bad news, given that high female life expectancy means we need a bigger, not smaller, pot to fund our retirement. It also means many women end up relying on their husbands or partners to fund their retirements. This can work very well indeed, but it can also turn out to be a costly mistake.

Divorced women often end up with no pension rights at all and, depressingly, so do widows. Why? Single annuities. On retirement, most people are obliged to buy an annuity (swapping a lump sum for a stream of income during their lifetime). They get a choice of exactly what sort to buy and can, for example, choose either a joint or a single policy. The joint allows their spouse to continue to receive an income after their death. The single does not. Yet half of all married men buy single life annuities. So for the sake of a slightly higher income during their own lifetimes, they leave their wives in the lurch on their deaths.

So what is a woman to do? If your husband or partner isn't yet at retirement stage, change the way you both save. It is more tax efficient to have a private pension each rather than just one. At the age of 65 you each get an annual personal allowance of £9,490 income free from tax. So two incomes rather than one means double the tax-free take.

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Then when it comes time to buy an annuity, make sure the partner with the big pension pot takes out a joint annuity. That will mean accepting a slightly lower monthly income than otherwise, but takes away the risk of one partner being left penniless.

At the same time make sure you do not take the annuity offered by your pension provider. In almost every case you will get a better deal by shopping around. Also note that when you retire you can take 25% of your pension pot tax-free: if you have debts of any kind it is well worth taking this and paying them off.

Finally, if you have long gaps in your employment history due to raising children or caring for elderly relatives, you may need to act to make sure you get the largest state pension possible. The National Insurance rules change this April so that both men and women only need to have made national insurance contributions for 30 years in order to qualify for a full state pension. If you haven't made that many contributions, you can 'buy back' missing years going back six years. It costs £626.60 to buy back a year find out more from the Pensions Service on 0845-602 1785.