ON WOMEN'S FINANCIAL INDEPENDENCE
By Hannah Ricci
Friday, June 20, 2008.
Each year thousands of women only come to realise how much they rely on their partner's money when their relationship ends. Whether you're on a low income or have taken time out to raise a family, it's all too easy to become financially dependent on your partner.
One of the biggest areas of concern is pensions and poverty in retirement. According to industry figures, 60% of women don't contribute to a personal pension and 1.6 million rely on their husband's.
This is fine if your life goes to plan, but, as we all know the future can be full of surprises. "Divorce rates are on the rise," says Fiona Sharp, senior adviser at Finance4Women. "Whatever the reason for this, it's more important than ever for women to become, and remain, as financially independent as possible so they are not left destitute."
Of course there are always state benefits, but the Government does not provide much of a safety net. Just 30% of women actually qualify for the full state pension, compared to 85% of men. This is because women typically have a more irregular working life than men and, as a result of taking time off to care for family, they don't make enough National Insurance contributions.
The Government is investigating ways to help combat the state pension shortfall. For example, it's considering giving credits to women who have taken time off work to care for children or relatives. Nonetheless, it warns that we still need to take more responsibility.
But the good news is that whatever age you are, and however reliant you are on your partner, it's never too late to turn things around. Awareness is the first step to getting back your financial independence.
Where possible, build up separate savings and investments in addition to any joint savings you might have, such as for a house deposit or holiday fund. This doesn't mean hiding money from your partner.
By discussing these issues, you may realise it makes sense for your partner to either make or transfer savings and investments into your name. This not only helps improve your financial independence, it can also be tax-efficient and help your partner too - especially if he pays tax at the higher rate.
Everyone has an annual tax-free allowance of £7,000 - use yours as well as your husband's and you can invest up to £14,000 tax-free - otherwise your partner would be charged tax at 22%, or 40% for higher-rate taxpayers, on any growth on any investments in excess of his allowance. It's also tax-efficient for your partner to set up a stakeholder pension in your name. With tax relief at 22%, it only costs £2,808 to invest the maximum yearly contribution of £3,600. Building up two pension pots will also mean you effectively double your income tax allowance in retirement.
Marriage and mortgage - or not
If you aren't married, it's essential to know where you stand legally. Many couples assume that 'common-law' marriage gives couples who live together the same rights as married couples and those in civil partnerships - this is currently under review, but as it stands there are no automatic rights.
So if you move into your partner's home, simply helping out with the mortgage and home improvements does not grant you any rights over the property, like the right to live there or a share of the proceeds if it's sold.
This is why unmarried couples should seek legal advice and draw up a cohabitation agreement. This will allow you to declare and document the payments you will be making to the mortgage, and it can also detail contributions to any savings and investments, to ensure the assets will be divided fairly, if you split up.
Life insurance and wills
If you're financially reliant on your partner - married or not - it's also worth ensuring he has an up-to-date will and adequate life insurance.
Putting a will in place is essential to ensure your partner's assets will pass onto his intended beneficiaries - don't assume money would go straight to you and your children, without a will the law dictates that a portion of the estate should be allocated to his parents, or siblings if the parents are no longer alive."
You should also ask your partner to have any life insurance written into trust, which allows him to complete a nomination form to name who should receive the policy proceeds. This is particularly important if you're not married.
Similarly, you have no legal entitlement to your husband's pension if you divorce.
If your partner runs his own business, it's important to look into that too.
This can all seem rather complicated and daunting - especially if you've never managed your own finances before. The key thing to remember, however, is that it's never too late to get involved and start having a say, says Sharp - and you don't have to do it alone. "Research online, speak to friends and female-friendly IFAs and get yourself informed now."
With thanks to Interactive Investors.
Please email comments to firstname.lastname@example.org