Just over 15 years ago I became a mother for the first time, and five years later I welcomed my second child.
The first time round, I took nine months of maternity leave before returning to work, but with reduced hours so I had time to care for my daughter.
After my second child was born, I decided to work compressed hours - squeezing 37 hours into a four-day week.
Looking back, it is hard to believe that I didn’t take a career break when I had two children under six and was juggling childcare duties and a full-time job. It’s easy to see why so many women make the decision to spend more time at home at that stage in life.
The decision to work reduced hours was not an easy one, but it meant that I had time to do some of the school runs and take care of my family - without racking up an eye-watering childcare bill.
Of course, the extortionate cost of childcare is one of the main reasons why many mothers consider working reduced hours or taking a career break.
Choosing to work reduced hours meant taking a pay cut, which I was happy to do if it meant more time at home with my daughter. However, I never considered how that could impact my workplace pension savings.
A reduced salary meant smaller monthly contributions, which would lead to a smaller pension pot when I retired - a situation commonly referred to as the “motherhood pension penalty”.
Research from a new Which? report has revealed that an average-earning mother working part-time due to childcare responsibilities could miss out on between £500 and £1,000 in pension contributions each year. Because savings grow over time, this means mothers working part-time could be £15,000 worse off in retirement.
When compared to men, who already earn more than women, this pension gap widens significantly - average-earning mothers who work reduced hours could be about £45,000 poorer in retirement than an average-earning man.
The “motherhood pension penalty” is a widely acknowledged issue within the pensions industry, but as yet, there is not a fix. It’s a significant element of the wider pension inequality problem, which sees men consistently getting a better deal than women in retirement.
Which? is calling for the government to give all new mothers a £2,000 top-up into a workplace pension to help address the shortfall and offset the loss to their pensions if they decide to work part-time.
Acknowledging that every family is different and many fathers also choose to take time out from their career or work reduced hours, we are proposing each household be given the choice whether the contribution is paid to another parent or primary carer.
A £2,000 cash injection could grow to as much as £7,500 if the funds stay invested for thirty or forty years, which could make up for some of the loss in savings mothers suffer when they work reduced hours due to caring responsibilities.
We want Amber Rudd - the Work and Pensions Secretary who has just taken up the role of Women and Equalities Minister - to look seriously at introducing this proposal.
Working women deserve a comfortable retirement, but the consequences of working reduced hours when we have children and taking that hit to retirement savings could come back to bite us.
The workplace pension has been hugely successful since its introduction, but it is time for the government to review the scheme to ensure it works for everyone.
We’d love to hear about your experience of this too, so please get involved and share your stories in the comments.
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Guest post: “The ‘motherhood pension penalty’ is a widely acknowledged issue”
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MumsnetGuestPosts · 01/08/2019 12:07
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