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Month: August 2017

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‘When it comes to women and pensions, things are not improving’

The current pay gap in Ireland between men and women is estimated at 14.1 per cent. The gap between the value of men’s and women’s pensions is more than two and a half times that, at 37 per cent*.

At its Celtic Tiger highest, pension coverage for women was 51 per cent. That has since fallen to 46 per cent, while 55 per cent of men have pensions. To put it more starkly, the Central Statistics Office (CSO) indicates that women are 80 per cent more likely to be impoverished at age 65 than men. Women aged 75 to 79 are three times more likely to be so.

“When it comes to women and pensions, things are not improving. If anything, they are getting worse,” says Kristen Foran, national sales director of Zurich Life Assurance.

Traditionally there have been a variety of reasons why women’s pensions – both in terms of coverage and value – lag men’s. This includes women’s greater presence in the home, doing unpaid work there that leaves them reliant, perhaps, on their husband’s pension.

Some women experience gaps in their employment history when they have children. Such time out leads to gaps not just in private pensions, but in State pension entitlements too. Only 16 per cent of people entitled to the State contributory pension are women, points out Foran. Homemakers are not entitled to any kind of ‘pension credit’.

Even where women do have a pension, its performance over time typically lags that of men. Here research indicates that women are typically more risk averse in terms of how much they contribute to their pensions fund, and how they wish it to be managed.**

Women’s retirement prospects vary by sector too. Of women aged between 45 and 54 in the education sector, one in four (25 per cent) have no pension. In the health sector that rises to almost one in three (32 per cent). Surprisingly, women working in the financial and business sector, who might be expected to know more about financial security, fare even worse, with 39 per cent of women in this age group having no pension*.

That climbs to 62 per cent for women working in retail and wholesale. In the hospitality sector – a major employer – less than one woman in five of this age group have a pension.

What should really set alarm bells ringing for women is not the fact that things are this bad, but that, “if anything, they are getting worse,” says Foran.

Part of her job as national sales director at Zurich is to try and figure out why this might be. In truth, she only has to talk to her girlfriends to find out. “Part of it is that women don’t want to think about pensions because they typically don’t want to think about getting older. More than that though is the fact that they tend to have priorities other than themselves, typically children and family,” says Foran.

Any time she mentions the importance of pensions to her peers, she’s met with the same stock replies: “They’ll all say, ‘Sure who can afford it?’ And that all their money is going into their kids, so it goes on the long finger.”

“It’s important for women to start having that conversation about what kind of retirement they envisage. Women are living longer than men, so our needs are greater.”

Marketing professionals know of the truth in the old adage that men buy for themselves and women buy for everybody else. This too may be part of the problem. “We don’t prioritise ourselves, and now we are the squeezed generation – women with both kids and eldercare commitments,” says Foran.

But there is another issue with the pensions industry that she also believes is preventing women from ensuring they have independence – in the form of financial security – in retirement.

Pensions are sold, not bought, she points out. “No one comes banging on the door looking to buy a pension. The value of it has to be explained, which means they have to be sold. Does the industry need to look at communicating better to women and developing pension plans designed to suit their needs? It would certainly help to increase engagement from women,” Foran says.

Consequently, one of the most effective ways to bridge the pension gender gap would be if more advisors were women. “The fact is, where women do advise on pensions, they are really good at it because they are strong on the empathy side and they understand women’s needs and concerns,” she says. “If we had more female advisors in the industry it would go a long way towards helping women’s status in relation to pensions.”

In the meantime, social media might help. “Women are the social junkies of the world and if you look at the top 100 digital influencers in Ireland, the majority are women. We can see social media as a really powerful way of getting this message out to women,” in a communications style that suits them, and that comes via a referral network they trust.

In many ways, for women of a certain age in Ireland, talk of pensions is almost as taboo as talk of menopause, she admits. “Yet if you think about it, on US TV shows like Friends you hear people talking about their 401K retirement plans all the time. It’s a much more prevalent topic of conversation there. Here women don’t want to talk about it. But it’s important for women to start having that conversation about what kind of retirement they envisage. Women are living longer than men, so our needs are greater.”

The first step towards figuring out what those needs are is for women to visualise the kind of retirement they want. By her own estimate, Foran reckons she’d need the State pension and a minimum pension fund of €20,000 a year to be able to enjoy retirement.

“Wouldn’t it be nice to feel financially secure and live the life you’ve always dreamt of in retirement,” Foran asks? “Planning your pension now is the first and most important step to fulfilling this dream.”

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What can I do with my pension if moving job?

Q&A: Dominic Coyle, Irish Times, 1st August 2017

‘I’m hoping you can give me some general guidance on a pension matter. I will be leaving my job next month after 10 years to return to college.

I have a defined pension contribution with my employer (Investment fund name Dynamic Pension and investment with Zurich). The current value stands at approx €65,000. Do I just leave it sitting there and transfer it to a new employer when I start a job in two years hopefully? Or someone mentioned to me about converting it to cash so that it doesn’t lose its value?

Pensions are foreign territory, so any help would be greatly appreciated!’

Ms M.O’D., email

 

Pensions are foreign territory to pretty much everyone, not least because there are so many different scenarios and the industry itself does little or nothing to make them more readily understandable.

I can pretty much guarantee that, regardless of what I say to you, someone in the industry will contact me to tell me that there was a different approach that I should have considered.

For this reason – and more importantly because you have significant savings of €65,000 tied up in this pension – it is important that you talk to an independent financial adviser, not be someone from Zurich which, naturally, cannot consider itself independent as it currently manages your fund.

 

Having said all that, there are a few things you should consider .

The Dynamic fund in which you are invested seems to have performed at or above average over the past decade or so. That’s hardly surprising as it is currently 92 per cent invested in stock market shares, or equities as they are also known. Stock markets have enjoyed sustained growth in recent years, and generally outperform other asset classes over the long term.

This is fine if you are younger with a reasonably long horizon before retirement. As you come nearer to retirement age – and you have less time to recover from nasty investment shocks – most advisers will move you away from equity-heavy funds to something with a lower risk profile, generally with a heavier weighting of cash and government bonds.

As you don’t give me any indication of age and retirement expectations, I can’t comment further. What I can say is that the Zurich Dynamic fund is classed as medium to high risk by the company itself, with a ranking of 5 on a scale of 1-7. You can find an explanation of Zurich risk rankings here: https://www.zurichlife.ie/funds/risk-ratings/.

As this is a defined contribution scheme organised through your current employer I assume you will have been given some advice of selecting this fund in the first place, and are happy to take on a reasonable amount of investment risk in the hope of securing higher investment returns – though your comment about “foreign territory” does make me wonder.

 

So what are your options now?

In general, when you leave an employer – and assuming you have been there more than two years, as you have been – you have three alternatives:

1. Leave it there: you can leave the pension where it is in your employer’s scheme and it will continue to grow (or diminish) according to market movement. It may well be open to you to move the savings within the employer’s fund to a slightly lower risk investment option if you are concerned about volatility, but you should certainly take professional advice before doing so. You will not be able to add further to this fund once you have left your current job.

When you retire, as with any other pension you have at that time, you will be able to draw some of it down in cash and take the rest by way of an annual annuity payment or transfer it into an Approved Retirement Fund where it can remain invested and, hopefully, continue to grow.

2. Purchase a buy-out bond: a buy-out bond, or a personal retirement bond as it is also known, allows you to transfer your current benefits to a personal pension plan controlled by you. You can change the way it is invested but you cannot add further to it. Your choices at retirement are the same as with any of the other options.

3. Transfer to a new employer’s pension scheme: obviously this is not relevant during the time of your study but you could still transfer from your current scheme to a new employer’s scheme when you secure work after your course. Any decision to do so would be based on the investment options offered by the new employer compared to your existing one and the charges involved.

 

In your particular case a fourth option is available. You can transfer the money for your current pension fund to a Personal Retirement Savings Account (PRSA). As I understand it, this is confined to people with less than 15 years’ service with their employer, which seems to cover you.

Given the size of your fund, however, you would need to secure something called a Certificate of Comparison highlighting the advantages and disadvantages of such a move. It examines the benefits you are likely to receive under your current scheme and the benefits likely to accrue within a PRSA. It comes with a written statement explaining why a transfer to a PRSA is in your best interest. That certificate and statement could cost you €2,000 or more.

The advantage of a PRSA over, say, a buyout bond is flexibility in that you can continue to add to the PRSA even while in college if you choose but also when you go back to work. You also have considerable control over how it is invested.

However, unsurprisingly, charges on individual PRSAs tend to be higher than you would encounter in group schemes, say with an employer. Also, an employment-based pension scheme generally offers additional benefits such a death in service and permanent health insurance should you no longer be able to work due to illness or injury.

There is also the question of whether your new employer would be willing to make contributions to a PRSA if they already fund an occupational scheme. Employer contributions are a big factor in helping your fund grow.

So, which option should you choose?

That all really depends on you, but you should consider carefully the charges associated with any of the options before selecting one. Charges eat into investment returns, and a small difference in charge can have a large impact on your final pension fund. If you are paying more the fund needs to be delivering a notably better return to overcome that impact.

You also mention the prospect of converting it into cash “so that it doesn’t lose its value”. Two things arise.

First, as you are in your current scheme more than two years, you cannot liquidate it – i.e. get your cash back, albeit after tax. The money is now locked into a pension fund of one sort or another until retirement.

You could transfer the money – possibly even within your current employer’s scheme or else through a buyout bond or a PRSA – so that it is invested only in cash. You would eliminate a lot of the volatility inherent in a fund invested heavily in equities. However, you would also be sacrificing any opportunity for that investment to grow as it will need to to provide a reasonable retirement income.

And the scheme will still lose its value. The impact of inflation will eat into the value of cash anyway. While inflation is low currently, it still has a cumulative impact over time, and policymakers are actively trying to raise the rate of inflation to around 2 per cent per annum.

In addition, a cash fund still has management charges even if they are lower than with an actively-managed equity fund, and those will also eat into the value of your pension.

Personally I don’t think a 100 per cent switch into cash makes any sense for you, but that is speaking as a journalist who writes in this area and not as a qualified professional investment adviser.

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