If you're thinking about relying on your husband's pension to see you through retirement rather than having your own, we give you four reasons why it's a bad idea.
Why you shouldn't rely on your husband's pension
If you're thinking about relying on your husband's pension to see you through retirement rather than having your own, we give you four reasons why it's a bad idea.
When it comes to saving up enough to retire on, women often find it more of a challenge compared to men. Many women take career breaks to look after children so they end up missing out on company pension benefits or find they simply don't get around to setting up their own pension pot.
In fact, research by Prudential shows women are more than twice as likely as men to have no pension at all. As a result, they may choose to rely on their husband's pension instead, believing this will help to see them through their twilight years.
But here are four reasons why this is a bad idea.
1. Your husband's pension might not be enough
The average expected retirement income for men retiring this year is £18,000, says Prudential. It's a pretty decent retirement income for one person, but is it really enough for the two of you? If your current joint income comes to £60,000, for example, it's unlikely you could afford for it to drop by £40,000.
Admittedly, the kids will have fled the nest and your mortgage should be paid off, but there will still be bills to pay. And if you want to carry on with a similar lifestyle to the one you have now – going on holiday, trips to the cinema, enjoying meals out – that money won't last long.
2. You might not qualify for full basic state pension
The full basic state pension is currently £107.45 a week or £5,587.40 a year. But in order to get the full amount, you'll need to have 30 qualifying years in which you have paid National Insurance (NI). If you don't have this, the amount you receive will be reduced.
If you haven't paid enough NI, you can claim on your husband's NI record as well. How much state pension you receive depends on your husband's NI record but the most you'll get is £64.40 a week. This will be on top of whatever state pension you are entitled to yourself.
However, it's still worth ensuring you qualify for full basic state pension in your own right because these rules could change. The state pension profiler will help you to work out how many qualifying years you have. If you don't have enough and you're approaching retirement, look at paying voluntary contributions to increase the length of time you've paid NI, which will cost you £13.25 a week.
3. You might split up
It's not a happy thought but what happens if you get divorced? Fortunately, pensions do get taken into consideration by the courts when assets are divided up, so with any luck you should receive a share of your husband's pension contributions. But this doesn't automatically mean you'll receive half of your husband's pension and how many people are aware of how good their husband has been at keeping up pension payments. You could get significantly less than you expect or even nothing at all, depending on the judgement of the court. Then what would you do?
4. Your husband might die before you
If you have to rely on your husband's pension, find out about the situation, especially if have never worked nor put money aside into a pension. Your husband could take out a single life annuity, which means he gets a bigger pay out but when he dies you will be left with nothing. That's because single life annuities pay out only until your husband dies. So should your husband pop his clogs before you, you will no longer have an income.
A joint life annuity, however, will provide an ongoing income for you if your husband dies before you. Your husband can decide how much annuity income you will have, whether this is the whole amount or a smaller percentage. However, the major downside is that it reduces the annuity income for your husband.
Get saving
Even if you can only afford to pay in a small amount each month, contributing to your own pension pot is well worth doing – and the earlier you do this, the better because it will have much longer to grow.
Oddly enough, even those not working can still save into a pension using a stakeholder pension You can pay in up to £3,600 a year and start with as little as £20 a month if you have the money to spare.
"If people want to maintain their standard of living in retirement it is important that they start to save as much as possible as early as possible, and the vast majority should join company pension schemes where possible," says Vince Smith-Hughes, retirement income expert at Prudential.
New rules coming into force from October will mean that all employers have to enrol their employees into a pension scheme. It's hoped this will encourage more people to save for their retirement as they will have to actively opt out if they don't want to contribute.
Employers will also have to pay into the scheme which will help employees to build up a decent sized pension pot far more quickly, so whatever you do, don't turn this opportunity down.
On top of this, an EU gender ruling that comes into effect in December will mean annuity rates for men and women will have to be equalised. Women have always received poorer annuity rates than men because they have longer life expectancies, meaning the annuity provider has to pay out for longer. But the new rules mean women will get better annuity rates, giving you even more of a reason to have your own pension.
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Quick tips
- Annuity rates for women will improve at the end of the year when an EU gender ruling comes into force
- If you get divorced, this doesn't automatically mean you'll get half of your husband's pension
- Auto-enrolment rules mean every employee will automatically be enrolled into a pension scheme
Saving for your retirement as early as possible is key to building up a decent sized pension pot