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

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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.

For me as a mother who has worked part time for many years and juggled my career the biggest pension penalty has been MARRIAGE. I am getting divorced and have to give some of my pension pot to my ex husband who worked full time but earned less than me. He wants that in cash. Thank God I didn’t work full time - he would simply have taken even more from me now. If I had been given an extra £2k that would have been £1k for him. For what???? I am the person who has sacrificed my career for my children and still do because I am now a single parent and one child has additional needs. Unless the government stops the scandal of CETV pension transfer for working mothers then there is no point in this suggestion. In fact the family courts assume a husband will subsidise his wife in retirement. In my case it would have been the other way round. This law is EVIL.

@Alislia17, that was unexpected and a little jolt at stupid o'clock .
Good luck with your future endeavours sweetheart.

The important thing is to keep highlighting this issue, because too many women bury their heads in the sand about it. It’s understandable in a way because when you’re in the age bracket to be having babies, it’s difficult to simultaneously think about pensions but it’s essential people do.

The idea of chucking money into people’s pension pot just because they’re had a baby is ridiculous and unaffordable. I also don’t believe it’s necessary- it would be like a sticking plaster rather than the real solution which is to raise awareness and encourage women to make good pension provision.

Longer maternity leave and subsidised childcare make being a WOHP more feasible than ever before, and it’s important people realise the impact of stopping working, or working reduced hours over the long term.

It’s not to say every parent should work full time over their entire career (indeed I dropped to 3 days when my babies were very small) but be aware of the impact: the longer you remain part time, the more your pension will be depleted.

I’m in my 50s now and the best thing I ever did career wise was A)never stopping work completely and B) stepping back up to full time work when my youngest turned 4. This was back in the days of no subsidised childcare, so it should be more realistic now that you Get free childcare hours.

As PP have mentioned, it’s short term pain for long term gain - I pay about 12% of my salary into my pension, and if I didn’t I’d have hundreds of pounds more disposable income each month. But that’s such a short sighted way to see it.

The govt needs to keep up the campaign to highlight what women need to be doing themselves to prepare financially for their older age. Not chuck money (which they haven’t got anyway!) at anyone

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.

This bit is important and sort of buried in the original post. I don't like the idea of this being targeted at "working mothers", it just reinforces the idea that women should be the ones to make all the changes after children. I'd rather see more men sharing care of their children by going part time/working flexibly/becoming SAHDs or whatever.

Its almost as though individual choices have consequences.

Choosing not to work or work p/t time obviously has financial consequences

Women are the ones who biologically give birth and therefore need time off for that. There’s no getting round that fact.

Women are the ones who biologically give birth and therefore need time off for that. There’s no getting round that fact.

That's obviously true, but it's not time off to recover from birth that's affecting pensions in a significant way. It's the much longer term stuff - who drops down their working hours to be able to do the school run? - and there's nothing biological about that.

Traditionally that is why a divorcing spouse, Male or female, can take a share of the higher earner’s pension pot. Although I don’t see that as fair as I was the higher earner and did most of the “wife work”, cut hours to care for kids etc etc. Why am I penalised just because my ex was not very good at his job and I was?

When are we going to stop thinking that taking time off to be with our children is something that the gov should compensate us for.

Yes you lost out on some pension BUT you gained time. Time with your children.

And I say this from the perspective of a sahm for 9 years and now part time single working parent.

Exactly NewAccount. Taking maternity leave doesn’t affect your pension. It’s what happens subsequently- whether a parent returns to work part time, or doesn’t return at all, how long they remain part time, whether they go back into lower paid roles or whether they retain their previous level.

I have quite a number of female colleagues who are my age (fifties) who have remained part time ever since having children, and that’s the kind of thing that really decimates your pension and of course by this age there’s very little you can do to make up for it.

A £2k handout isn't the way to go, it costs a fortune and makes very little real difference to those who need it most. It also doesn't incentivise change.

We need a huge change in attitudes to pensions generally and also in attitudes to parenting and work.

I think money would be better invested in providing a decent period of paid non-transferrable paternity leave once the mother has returnedto work. This encourages mothers back into work and encourages men to share the childcare load.

Providing subsided childcare from age 1-2 would also be of more practical help to women. It is easiest to return to work immediately at the end of maternity leave when there is a job available for you but this is when childcare is most expensive and there is least help it is easy to understand why a woman in a low paying job might chose to stay at home but if there was more help with the cost of childcare then it would be easier to return and restart pension contributions.

If the government are hell bent on offering a top up do it during maternity leave and make it conditional upon returning to work and restarting pension contributions for a year after maternity leave so that they are encouraging women to get back to work and making their own contributions.

I think auto-enrolment needs toughening up too. A pension shouldn't be an optional extra, start everyone with a pension contribution from their first paying job, no exceptions for under 18s or apprentices, and make it much more difficult to opt out without alternative provision. Pensions are easiest if you start young before you miss the extra cash and they become a good habit. Also make it easier for people to combine multiple funds so they don't have multiple different funds from various different jobs throughout their career so they can easily see their contributions making a difference.

Absolutely not. Completely unfair on working mothers to end up subsidising someone else’s choice to remain at home. No.

My pension is rubbish because I chose to stay at home with the kids. This was my choice and I wouldn't change it. However, it's also why I chose to work full time as soon as my youngest started school!

Ridiculous idea and rubbish OP

If you are squeezing 37 hours into 4 days rather than 5, you aren’t working reduced hours, you are just working those hours in 4 days. If you’ve taken a 20% pay cut to do the same work, more fool you

Usernumbers I don’t understand that either! If she’s working full time hours but compressing them into 4 days then how come her salary and pension are affected? Doesn’t make sense.
I also feel it’s a bit ‘woe is me’, saying she ‘can’t believe’ she didn’t take a career break with two children under 6. That sounds as though she had a fairly large gap between the kids, presumably one even in school before having the other. She also had 9 months off first time round (she doesn’t mention how long second time so I suspect it was at least 9 months again) which is a pretty decent amount of time off. Plenty of women have more than two kids, often closer in age and manage perfectly ok.

I also really object to the way it’s all directed at ‘motherhood.’ No, it’s not just about mothers: it takes two to have a child and beyond the lengthy ML available nowadays it really is up to couples to decide who (if anyone) is going to take more time off

If you are squeezing 37 hours into 4 days rather than 5, you aren’t working reduced hours, you are just working those hours in 4 days. If you’ve taken a 20% pay cut to do the same work, more fool you

This

And the Op is chief economist at Which!

Thanks for all the comments so far. It’s clear this is an issue that lots of you feel passionate about and your comments are going to give us lots to consider.

One of the points some people raised is whether spending on women’s pensions is the best use of government money. That’s always going to be a tough call, but it’s clear the government sees supporting workplace pensions as important because it spent about £41 billion on tax relief last year. Given this, we think we think the system could be fairer for women.

Another point that has been raised is the cost of childcare. We think this is really important too. It’s a big driver of the gender pensions gap because the cost of childcare can often mean that women who want to make the choice to go back to work full-time can’t afford it.

£2,000 wouldn’t be enough to close the gender pension gap. But it could grow to as much as £7,500 come retirement and this might well be enough to offset the losses for a mother working part-time before her child goes to school.

We think we need to find policies that specifically support women to tackle the gender pension gap. We’re going to take on board all your comments and see how best we can do this.

Good that you’re listening to the comments, even though the vast majority are not supporting the idea of the govt giving money in this way.

My feeling is very much that your intentions are correct: you want to do something to close the gap. But I honestly think this is A) unworkable - there are other things that should be prioritised and most importantly B) I don’t think it would be at all effective. As I said, it would be like using a very ineffectual sticking plaster. IME the only solution is to keep encouraging women to take their career and pension provision more seriously, thinking long term, not just in the short term of childcare costs being high.

Many of us have worked for no immediate financial benefit when our children are in expensive nursery care but we do it for the long term benefits. And I say that as a woman in my 50s who was in that position for far longer than nowadays with childcare subsidies. I thought the point made by pp was good: why not provide the free childcare hours when the child is one, at the end of ML, to encourage more women to go back? Even if it meant taking a bit of a hit by having to pay more when the child turned 2, you’d keep more women in work because once they’d returned they’d be more likely to stay.

Or at the very least, if you’re going with the idea of giving 2k to women when they give birth, link it to meeting certain criteria, eg returning to work for a minimum of 12 months and paying into a workplace pension?

It simply doesn’t work to give people what they would see as a hand out. (I know it wouldn’t actually be money in their pocket in the here and now but in effect it would still be giving money with no conditions attached) I think it can actually disenfranchise people and Encourage them to be less likely to take personal responsibility for themselves financially.

when all’s said and done, it’s simple logic that the more you work and pay in to a pension, the more you’ll get out. That’s the message that needs driving home- not giving away cash

And how about the women who gave up work to have children many years ago and are close to receiving pensions now...do they get £2000?
They are the ones for whom there were no child care facilities/financial assistance, no tax credits etc.

I agree with many other posters that the solution to this is through subsidised child care and encouraging women to think in the long term, rather than flinging £2k into a pension. Maternity leave isn't the issue and many employers will still cover pension contributions throughout ML. The issue is maternity leave turning into a life time of SAHMing or PT work. Making child care less of a barrier from the age of 1 would be much more effective than what the OP proposes.

@WhichRocio

Have you actually read the comments?

I don’t agree sorry. My employer has continued to pay into my pension during maternity leave and has paid my contributions. It is my choice to go part time- the government shouldn’t have to fund that. What I would like to see though is more awareness re retirement planning in general and more of a recognition that returning to work is valuable for the pension even if childcare takes up most of your wage.

We all, but mainly those of you who are younger, need to take all the pension opportunities offered before you have children. Saving the most you possibly can afford before children come along is the best bet. Money saved in your early 20s has 40 years of compound interest and investment yield, and will mount up to something decent. I used to work for a huge pension fund and every £ saved before you hit 30 is worth twice the £ saved after. Consider.

"£7,500 might be enough to offset the losses for a mother working part-time before her child goes to school"

I'd love to know where in the UK £7.5k stretches that far

I think as many have pointed out, education is key. My DC are 3 & 6. The 3 year old starts FT preschool next month and so we are finally nearing the end of our huge monthly childcare bill. It's been a slog. I took 12 months maternity leave with both and then returned to work full-time. The option to go down to 4 days was available but I declined as a) I knew no-one would pick up my work on the Friday i was off so I'd end up doing 5 days work in 4 for less money and b) I attended a personal finance workshop (ironically organised by my employer) specially for women which addressed the pension penalty issue and the pitfalls of reducing hours or leaving work altogether.

I'm senior enough at work now to organise my own schedule and workload so I front load my week with client meetings and anything requiring face to face time with colleagues. On Fridays I WFH but typically have cleared most of my work so am able to do the school run and spend time with my younger child.

Unfortunately many of my friends with similarly aged DC do not appear to have received the memo. The vast majority either stopped working after their second DC (a couple were encouraged by their husbands who insisted it was "the best thing for the family" and so have now abandoned their careers altogether) or took part time school run jobs / poorly paid weekend work.

When I mention the pension issue to these friends I am met with blank stares, shrugs or assurances that their DH will be financially responsible for them in old age. These are intelligent women and their lack of planning really concerns me.