Guest post: “The ‘motherhood pension penalty’ is a widely acknowledged issue”

[MumsnetGuestPosts]

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.

[SunniDay]

When social care and NHS budgets are stretched and vital services are being slashed and closing it seems a very strange thing to decide to give everyone that has a baby 2k (into their pension) - not even means tested?

[TheNavigator]

I am not sure what the solution is, but I recognise the problem. It is the reason I am now working full time in my 50s, to try and make up the gap in my pension as a result of career breaks and part time working. I could afford to reduce my hours on a day to day level, but I really want to build up my pension for a comfortable old age longer term.

The problem is, in the white heat of young children and child care, the last thing on your mind is your pension, you are just coping in the moment. I think larger structural change, including more men stepping up and taking the career hit, is more important than a relatively small injection of cash.

[Brefugee]

The solution is to get men to be doing more of the reducing hours or working to fit in childcare. Then at least taking the hit is spread equally...

[Bravelurker]

I don't mean to be a dick but can everyone who finds themselves out of work and not in receipt of any benefits for whatever reason be eligible for a 2k pension top up?

[siring1]

If you pay less into a savings scheme, you're going to less out.

I save less than my friend into my holiday fund. When will the government realise this and give me CASH!!!

[themmatricc]

i disagree why should the government pay for mothers financial decisions? even more than they already do maternity leave child tax credits etc

[Penguincity]

An other one who does not agree. We need more information about what stopping work /going part time does to your pension, we need affordable childcare and we need more men doing some of the childcare not a hand out

[SilverySurfer]

Can a single person who saved to buy a house, pays the mortgage and all utilities and food and expenses out of one wage also be given 2k of other people's money?

If people choose to have a baby they should be responsible for it financially and IMO that should include provision of payment to a pension for the mother if she's a SAHM or she could do like millions of others and go out to work and pay for her own pension.

[Oblomov19]

I have done this. And now realise this, similar to OP, but less hours than her compressed. my pension pot is pitiful.

But I can't support the idea to ask for £2k injection. The Government is stretched and they can't/shouldn't agree to that proposal.

[ChopinIn10Minuets]

Perhaps it's time the pensions market caught up with the fact that its customers all have different needs and profiles. If you look at insurance or mortgages you'll find all sorts of products; perhaps this is something that is best fixed with a healthy dose of privatisation and some imagination on the part of fund providers.

Women (or men) who've had a career break could choose a pension (perhaps with a higher interest rate or a higher risk profile) where they could pay varying amounts to offset the time they've spent out of the jobs market, or in jobs where they haven't been able to contribute for whatever reason. It's time we ditched the 'handout mentality' WRT pensions. After all, most of us pay what we can into it, if and when we are able to.

[ButtercupGirI]

I decided quit my job and became a sahm for years, can someone please top up my pension too to cover my lost

On a serious note, there are far more important areas the goverment should spend our money on instead of supporting one's life style choice.

[HunterHearstHelmsley]

If it's not means tested then it's a ridiculous idea. Someone on a £60k FT salary (say 50% so 30k) could have a 2k top up whereas as someone working full time minimum wage wouldn't.

[StripeySocks29]

Well I like this idea, I’m planning in creasing my pension contributions after I stop paying for childcare, but like PP I’d prefer to have affordable childcare - as the cost of childcare means we can realistically only afford one child unless we want to spend the best part of a decade overdrawn, no chance of saving and counting the pennies.

[Jackyjill6]

This is one of the reasons older women are struggling with small pensions now. It's good that awareness around this inequality is increasing.

[Cosentyx]

Ridiculous idea. Would rather see more investment in quality, affordable childcare and more shared care/men doing more of their fair share.

[ImperfectAlf]

The decision I made (with DH) to have children was ours, as was dealing with the childcare. I became a SAHP because I was earning less than him. However, the impact on my pension is huge. HUGE. Any money we had over went into his workplace pension, because I wasn’t working at the time. (Am now, obviously)
The best thing that could happen for us is if the government arranged for his pension to become mine when he dies. After all, he paid in to it. But it dies with him. Our family money includes his pension. If I divorced him, it would be shared, so 🤷🏻‍♀️

[MulberryPeony]

I think more information needs to be available about pension planning, including the effect of not paying in for a number of years (due to maternity break or career break for caring), pension holder dying before pensionable age and what then happens to the money in different schemes (mine can be put in trust for the kids for instance) but I’m not sure I’m blanket in favour of handouts.

[FuzzyPuffling]

You think the Government has the money for this when they continue to say they haven't got the money to help women in their 50's who were shafted by the raise in pension age? I think not.

[NewAccount270219]

I find it quite weird that there is absolutely no justification given for the £2k figure in the OP/article - it seems to be totally plucked from the air.

[Brefugee]

Affordable childcare now is great for those with young children. Some women have struggled because they are now in their late 50s and when their children were young there was much less childcare around because women were pretty much expected to give up their job (and pension) and stay at home.

It is those women who need help soon - not people with young children now (well they do as well, but I'd rather prioritise women who have taken a huge hit, in some cases)

[NewAccount270219]

I can see the justification for focusing on younger women, which is that money in their pension pot has a much bigger impact. Giving a 55 year old £2000 in their pot really is achieving v little, whereas the same sum to a 30 year old will end up achieving much more (hopefully).

It is a general problem with pensions - the most important contributions are those you make when it feels least important and most distant. It is hard to prioritise when still quite young. DH and I are in our mid 30s and both have theoretically generous (though god knows what will have become of them in 30 years) pensions, but we did recently realise that one reason we seem to have less money than friends with similar salaries is that most of them contribute either nothing or a lot less than us in pension - and that gives them the best part of £500 a month more spare cash than us. My pension contributions are going up to 10% soon and it is really painful to see that disappear from my pay packet when we have mortgage and childcare bills to pay.

[Jigsawpuzzle]

I returned to work PT after my DD and left job after DS (Civil Service)
I now have my pension but am in the fortunate position that house is paid and DH has a good pension & state pension but I am also one of the WASPI women age 62 who has to wait until 66 for State pension with a full NI record held.

[manicmij]

What about all the older women who had no option other than to leave a job when having children. No maternity leave, very little child care provision of any kind, certainly no help with childcare costs and in some cases had to leave their job permanently when having a child. It's not that long ago and their pension will be miserable in comparison to today's amount.

[MulberryPeony]

@jigsawpuzzle there is quite a group on twitter trying to keep the focus on the WASPI womens campaign if you can spare the time to get involved. I know from my DM how many thousands of pounds your age group have each lost out on with little notice to plan ahead.

[floribunda18]

I've been part time off and on since DD1 was born but the least I've earned in that time is more than the full time average wage. I'd rather see the top up go to someone who needs it.