Younger retirees are failing to provide pension for their partners

Cheerful young couple using laptop at home

Partnership, whether married or not, is all about sharing the future together. Most people look forward to a time when they will have more time to spend together, usually once they have stopped working. However, very few couples have made plans to secure a retirement income for both partners.

Aegon’s ‘The Golden Age of Retirement’ report found that three-quarters (75%) of those over the age of 75 have made some provision for their spouse. This falls to fewer than half (47%) in the 45 to 54 age group.

Perhaps this isn’t so surprising, as it's traditional for couples to have a ‘bread winner’, who is the primary earner.

This primary earner will have typically made some pension savings – either privately or through their employer – while their partner may have had time out of work to raise a family, or due to an illness, or to spend time caring for a loved one.

As a result, they will likely have a patchy work record and may have made little or no contribution to a pension. In this age group, less than a third (31%) of women will have a pension against almost half (49%) of men. More worrying is that a quarter (25%) say their partner has no pension of their own at all.

When two become one

People often put off pension saving until later in life while they clear debt, buy a house or start a family; additional saving for a partner simply doesn’t come into the equation when there are priorities elsewhere.

However, if one partner has provision and the other doesn’t, what would happen if the provider was suddenly not on the scene?

Some people might think that will never happen, but men tend to have a shorter life expectancy by about three years – although this is changing – and both men and women tend to underestimate how long they will live for by anything up to five years.  

This is traditionally more of a problem for women who – because of their work histories – are reliant on their partner’s pension for their income in retirement. Unless their partner’s workplace pension scheme offers a spouse’s pension or specific provision was made when purchasing an annuity or other income product, they’ll find their income dries up.

Relying on the state pension may provide cold comfort in later years. The state pension has always been there as a safety net to keep people out of abject poverty but it is not a savings scheme to provide a comfortable pension. Women or carers with incomplete national insurance contributions will find their pension will be even less than they might have expected. 

So, making plans sooner rather than later may prevent the surviving partner living his or her last days on a shoestring.

Where to start

There are a number of ways to go about boosting a partner’s pension saving, but start by making full use of tax allowances.

Contributions can be made to a pension plan even when someone is not working, or when earning too little to pay income tax. Pension contributions up to a maximum of £3,600 a year may be made into a plan.

This is a no-brainer if saving elsewhere, such as into a bank account or individual savings account (ISA). If someone earns less than £3,600 of what the government calls “relevant income”, £2,880 can be paid in and the government will top it up with tax relief to £3,600. That’s 25% free money.

It’s not just good to talk – it’s crucial

It may seem a long way off, but once the kids have finally fled the nest, it will be much harder and more costly to start saving. 

This requires both partners to sit down and talk things over – what money they have now, how much they want in the future and how they will get there. It sounds easy, but it’s not: money is one subject that many couples avoid. The closer you get to retirement the more you need to begin to plan your retirement finances in tandem. One of the main benefits of reviewing your retirement plans as a couple, is to ensure that should something happen to you, your partner will be provided for and won’t end up reliant on a less than generous state pension.

This is traditionally more of a problem for women who on average live longer and may have been more reliant on a husband for pension income or who have been unable to build up an adequate pension for themselves due to time out to care for children or elderly relatives.

Avoiding the matter doesn’t resolve it, and they do say a problem shared is a problem halved. Seeking advice from an independent financial adviser will enable you to get a better understanding of what’s required, a clearer picture of your savings and what changes you and your partner may need to make.

Planning a future together should encompass all areas – including financial – if partners want to make the most of their savings and avoid any nasty surprises when the future inevitably arrives.