Pensions are sexy - official

Money may not be able to buy you love but it can definitely help to create an environment conducive to romance. A recent survey commissioned by Eagle Star shows that more people than ever now take financial security into account when eyeing up a potential partner.

The "live now, pay later" ideal is becoming increasingly dated. Nearly three-fifths of the single people questioned said they would only agree with such a philosophy if they actually had a partner who could afford to pay later.

Pension provision - a subject that has traditionally had few romantic connotations - was found to figure prominently in the eligibility stakes. No less than 80 per cent of men and women said that their ideal partner would have a pension so they could live comfortably in old age.

"More and more people are now starting new relationships in their 40s and 50s when retirement no longer seems that far away," says Rob Skinner, spokesman for Eagle Star. "Love isn't blind any longer when it comes to money. The future isn't going to take care of itself and men are going to have a tough time from their partners if they insist on entrusting their retirement planning to luck."

The survey also reveals differences in opinion between the two sexes. More than two-thirds of women, compared with only half of men, said the prospect of financial security was actually an important part of romance.

The male attitude may have to harden somewhat in the wake of last July's changes in the divorce laws, which gave the courts powers to ensure that a divorced spouse can receive a share of the partner's pension. So choosing a wife with a decent pension of her own can certainly make life easier should the marriage fail to go the full distance.

"The courts take into account the financial position of both parties," explains Robert Owen, senior consultant at Bacon & Woodrow, a leading firm of benefit consultants. "If, for example, the wife has similar pension arrangements to her husband, the court may not make any orders in relation to his pension."

Eventually, the balance is due to be tilted even more in

favour of wives who have failed to provide for themselves. At present, an ex-wife granted a share of her husband's pension cannot normally take it until he retires.

Such a situation is obviously far from satisfactory. An ex-husband could deliberately postpone his retirement to deny his ex-wife her share. Furthermore, his pension will die with him. If his ex-wife outlives him this could leave her with a struggle on her hands.

In the Family Law Act 1996 the Government provisionally accepted the principle that the courts should have the option of splitting a pension at the time of divorce, enabling an ex-wife to transfer a pot of money to her personal pension plan. This will enable her to take her pension from the time of her retirement to the time of her death.

Bacon & Woodrow's Robert Owen says: "It's understood that pension splitting will be introduced, but probably not before 2000. There are a number of technical difficulties that need to be addressed first."

Recent research by Flemings shows that 53 per cent of all women of working age - excluding students - face financial hardship in retirement, compared with only 40 per cent of men (see table). Financial hardship is defined as having an income on retirement below 40 per cent of final earnings.

Women are more likely to be in contract or part-time work, especially in the service sector, where no company scheme is provided. Many also take enforced career breaks when they raise children. The impact that career breaks can have on final pension entitlements is not always appreciated. Wives who take breaks will not be in a company pension scheme and, because contributions are only permitted from earned income, they cannot contribute towards a personal pension plan while they are off work.

A woman who starts making pension contributions of pounds 200 a month from the age of 30 would, for example, build up a final pension fund of around pounds 296,000 by the time she retires at 60 - assuming 9 per cent per annum investment growth and a reasonable charging structure.

"The same woman would, however, build up a fund of around pounds 246,000 if she took a career break between the ages of 35 and 40. To make up the pounds 50,000 shortfall she would need to save an additional pounds 65 a month during working years.

"It seems unfair that women are not allowed to benefit from the tax advantages of pensions while they are at home taking care of children or caring for elderly relatives," says Daniel Godfrey, marketing director at Flemings. "I don't believe there is any attempt to rectify the situation on the political agenda."

Women should consider saving for retirement by other means during their career breaks. Elspeth May, partner for personal financial services at KPMG, says that PEPs should not be overlooked. "Making regular contributions to a PEP can be a good financial discipline and one that invests in a broadly based unit trust or investment trust would be appropriate for most people," she says.

Investments placed within a PEP are free from income tax and capital gains tax, but contributions do not attract tax relief like those made to personal pension plans. PEP investments on the other hand, are not locked up until retirement as pension investments are. They thus offer greater flexibility to anyone wishing to retire early or make withdrawals before retirement.