Pensions: The Motherhood Penalty

“We should all be particularly concerned about women losing out on pension contributions when taking on caring roles for children and older parents. This is often connected to an increased likelihood of dropping to part time work.”

Sarah Wallace, Programmes & Innovations Director

Sarah Wallace, Director of the Just Finance Foundation and one of only 36% of women in senior management positions in UK charities, is concerned about the pension gap. And she’s not wrong to be worried. On average, women across the UK have 38% less in their pension pots than men. For those over the age of 50, the gap is worse: 46%. In real money, that’s £52,592 in men’s workplace pension pots and £28,249 in women’s. This is more than double the gap for savers under the age of 30. So, what’s happening over those 20 years?  And how can we change it?

What’s happening?

Believe it or not, up until the age of 30, the pay gap between full-time working men and women is almost nothing. It’s only between the ages of 30 and 39 that it rises to a noticeable 3%. From age 40 until retirement, however, the gap quadruples and consistently hovers around 12% - a disparity that can, in large part, be attributed to the motherhood penalty.

After leaving full time employment to give birth, women often choose to seek or return to part time work while their children are young. As a reward for absorbing the caring responsibilities at home, these part-time employees are compensated roughly 20% less than those doing a similar job as a full-time employee. Compound that with the fact that women are often unable to find part time work (and pay) at a level commensurate with their skills, and a new understanding of gender pay gap starts to emerge.

While many women opt to stay home with their young children (a trend, it is important to note, that shows no signs of changing), they do not desire to work in roles that do not utilise their hard-won experience or skillsets. And yet, the inflexibility of more traditional workplaces forces many women to take on low skill jobs with lesser responsibilities and lower compensation than they had before motherhood. Years later, when their children are grown, many 40+ year old women return to full time employment. And after years of lower skilled, lower paid part time work, they can expect to be awarded a significantly lower salary than their male (and childless female) counterparts of the same age. This is the motherhood penalty; and for those without perfectly healthy, able-bodied, and neurotypical children and elderly relatives, it can be even more severe.

The gender pension gap is double the gender pay gap.

The gender pay gap is only the tip of the iceberg, however. Sure, earning less will mean you’re paying less into your pension. And time off work will add to the shortfall. But in 2020, full time employees were 1.5 times more likely to have a workplace pension than part time employees. Because 38% of women work part time, as opposed to 13% of men, this impacts women significantly more than men.

Employers are only required to auto-enroll their employees in the company pension scheme if they earn more than £10,000 per year. The median average for part time workers is £11,000, which translates to no autoenrollment in pensions for more than half of part time workers. As we know, female carers are often found in these low skilled, low paid roles.

It is possible to opt into a workplace pension scheme if you earn less than £10,000, however, women must be proactive about this and will not experience the benefit of autoenrollment, unlike their higher paid, full time (often male) counterparts. Those who earn between £6,240 and £10,000 per year still qualify for minimum employer contributions, but without autoenrollment they often miss out. Anyone earning less than this can still pay in, and while they will not benefit from employer contributions, they will benefit from tax relief on any money saved.

What can you control?

Consider the financial impact of childcare arrangements. When deciding who will assume what caring responsibilities between co-parents, insist that pensions are a factor in the discussion. Considerations about long-term earning potential, workplace specific pension benefits, and whether both partners have high career aspirations should all feature in a conversation about the balancing act of caring and working.

Factor pension contributions into your budget. You might not be working, but you can still be contributing. You can contribute to your pension even if you are not working, regardless of the reason you are unemployed. Ensure your family budget includes contributions to both pensions.

Don’t be afraid to ask for what’s rightfully yours. Request to be enrolled in your workplace pension scheme if you’re earning less than £10,000. It’s not automatic, but it’s still yours.

Childcare costs are family costs. For those living with their co-parent, remember that childcare is a joint household responsibility and should be split equitably – not necessarily equally – between partners. For those not living with their co-parent, remember that child maintenance is statutory. Childcare costs are not solely the responsibility of women and the salaries they earn.

Max the match. Many workplaces will offer a pension match beyond the statutory minimum. If you can afford it, meet that match, especially when you are young and childless. You’ll never regret a head start on building up your pension pot. 

What can we campaign for?

Changing the earnings trigger to the primary National Insurance threshold. Lowering the threshold to £8,628 would bring in half a million new pension savers, three-quarters of whom would be women.

A single, specific ear-marked grant to local authorities to cover the real cost of the guaranteed 30-hours per week childcare for all 3- and 4-year olds, would offer women who want it a real opportunity to return to full time employment. Each grant should take account of the actual numbers of children under the age of 5 in each local authority each year.

The normalisation of flexible working hours – carer’s skills are being lost to inflexible, outdated workplace norms. Encouraging employers to embrace unconventional working patterns would see a lift in economic productivity and drop in the pension and pay gap.