Investing is simpler than you think.
Radical changes to pensions announced in the Government’s Comprehensive Spending Review were welcomed by many. Equalising the pension age for men and women, together with raising the retirement age from 65 to 66 by 2020, will save the taxpayer billions, but the changes won’t affect everyone in the same way. SmartWoman spoke to Dr Ros Altmann, Director General at Saga and pensions guru, about what she thinks of these changes and their impact.
Do you feel that the recent changes announced to pensions affect women more than men?
Absolutely. The Government has announced that women’s state pension age – which was increased a few years ago – will be increased again from 2016. This is a shocking decision with very real implications for women.
So what does this mean?
This will impact a very large number of women born around 1954 – almost half a million in fact. These women have been given almost no warning and no real chance to prepare. They have already been hit once, but the same women have now been targeted again.
These changes have been made by men, thinking about men, and will have an unfair and disproportionate effect on many women. Yes, we need to do something about the size of our state pension bill but women are paying the price.
Is there any evidence to show that women have smaller pensions than men?
Yes. Across both state and private pensions, women have smaller pots than men. This is down to a number of lifestyle elements. Women often spend fewer years in the labour force, earn less during their careers as a result and so do not build up such a strong company or private pension. For the same reasons, they are often disadvantaged when it comes to state pensions.
How does the state pension system impact women?
Our country’s pension system was set up in the 1940s, when women’s lives were very different. For one, women no longer rely so heavily on men to look after them in later life. We have to accept that demographics are changing and that people, particularly women, are living longer (more frequently on their own), and leading different lives.
It seems quite gloomy. How can we give ourselves the best head start?
I think our country needs to return to a savings culture. I recommend starting small. Try saving in an ISA, rather than a pension. This may be less scary, as your money is not locked away. It is really important to do all that you can to educate yourself financially. It is so important to know what you are going to end up with.
Do you think women have any particular traits that could help them in this area?
There are certainly cultural elements that come into play here. Women often have a tendency to want to save more; people often talk about a nesting instinct that kicks in when it comes to finance. The downside, as we have already discussed, is that women often have less money to save and invest with.
What do you think needs to change?
Women need to take more responsibility for understanding how to look after their financial futures. Although we often control the family purse strings on a day-to-day basis, it is usually the men that manage the long-term finances. Let’s see if we can change that, one family at a time!
We also need to drastically change our culture and rein back Britain’s obsession with spending.
Do you have any words of advice?
Women need to start thinking seriously about saving for their own retirements. We need to picture the worst case scenario – that we will be on our own with no one to look after us but ourselves. Take the first step and make sure you are prepared for financial independence.
Please note that the views expressed in this article are those of the author and not necessarily those of SmartWoman and Barclays Stockbrokers.
Dr Ros Altmann is a pensions expert and policy adviser. An economist by training, Ros was an academic at University College, London, the London School of Economics and Harvard University, researching pensions policy and retirement. She subsequently launched a career in investment banking. Ros continues to champion the cause for pensions justice.