I recently read an article confirming that €60 a week was found to be the typical payout a working woman can expect from her pension, which adds up to about €3,000 per annum (p.a)

Including the full State pension of €12,000 p.a, this would bring a woman's income on retirement up to €15,000 p.a. That's less than half the average wage and it would be a challenge for anyone on that sum to make ends meet. Furthermore, many women could face retirement on an income that is well below €15,000 p.a as not everyone qualifies for the full State pension. Many women get a lot less from their private pension than €3,000 p.a and hundreds of thousands of women (including those in and out of the workforce) do not have any private pension at all.

Given the unique challenges women face, it comes as no surprise that their pension savings are considerably less than those for males.

The working lives of women can be disrupted (reduced working hours in order to care for their children/ elderly parents) and puts them at a disadvantage when it comes to salaries. Female salaries can lag behind their male counterparts by more than 20% at times.

Shorter hours mean less take-home pay, reducing the amount that women can afford to put aside for their retirement. Most worryingly of all, over four in ten women between 40 and 59 years old have not yet started planning for retirement.

It is not surprising therefore, that men generally contribute more into their pensions than women do over the course of their working lives, which is the main reason a woman's pension often pales in comparison to a man’s. Many women go on maternity leave between the ages of 27 and 37 at a time when their male counterparts make their career moves up the ladder and unfortunately many women are out of the workforce at just the wrong time.

This makes women very vulnerable. Without adequate savings of their own, if their relationship breaks down or their partner dies before them, they could be stuck on the breadline for the rest of their lives. The outlook is equally bleak for single women who are not putting money away.

Pensions are a very tax-efficient way of saving

When you contribute to a pension plan, the net cost or the 'real' cost to you is not as high as you would initially think. The Government provides generous tax relief at your highest tax rate to encourage pension saving.

In other words, if your income levels bring you into the higher income tax bracket then you get tax relief at that rate. Likewise, if your income level means that you are paying tax at the lower rate only, then this is the rate at which you get the tax relief.

How pension tax relief works

You decide how much you need to contribute to your pension to provide you with a comfortable retirement. If it is a company scheme your payroll area will arrange all the rest and give you the tax relief at source as part of your regular payroll payment.

So, if you decide, for example, to save €100 a month into your pension plan, your payroll department will arrange for that amount to be paid into your pension plan directly from your salary. They will also calculate and apply the tax relief that you are entitled to. Your take-home pay will only reduce by the difference.

Examples of income tax pension relief

For example, for every €100 you contribute, your take-home pay will only be reduced by €60 if you pay tax at 40%  and by €80 if you pay tax at 20%.  €100 is invested into your pension plan.

This means that should you contribute €300 a month, your take-home pay will only go down by €180 if you pay tax at 40% and by €240 if you pay tax at 20%. But €300 will be invested into your pension plan.

Lastly some advice for stay-at-home mothers who will rely on their husband’s private pension as their future source of income. Make sure you understand what you can expect from your partner's pension if you are in this situation. If your spouse is buying an annuity (pension income at retirement) with his pension pot, it is very important to discuss and agree what pension will remain in the event of his death. Although anyone can open a Personal Retirement Savings Account (PRSA - a type of personal pension), it often does not make financial sense for a stay-at-home mother to pay into one. If you are a stay-at-home mother earning no income in your own right, you will not be able to claim income tax relief against pension contributions.

Remember as well, that you may be taxed when you draw down the PRSA on retirement many years into the future so you could end up with a pension fund you got no tax relief on, giving you an income that you will pay tax on. That's not exactly great tax planning.

I would recommend you speak to a financial advisor before you start a pension plan to ensure you are getting the best advice and even if you can only afford to put a small amount away each month, do this regularly and it could make all the difference to ensuring a dignified retirement.

If you wish to discuss your pension requirements please contact us on 021 4641480 or email info@qwm.ie