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.

My decision to have DC. I understood the financial consequences. I do not expect the tax payer to cough up to fund my life choices.

I have missed out considerably as my ex husband had a private pension through his work that we topped up massively and they then matched. This made us quite skint every month as it was a big chunk of our income. But it was supposed to be for our retirement. Roll on the divorce and I didn't see a penny of said pension because of a clause in his contract. I had nothing from staying at home, and I missed out on an enormous pension share because of a technicality. Now I'm back at work full time and worry that I'll have enough to live on in my old age. It's not fun or fair.

Please take my 2k and split it - 50% to WASPIs who need it, 50% on communication to ALL younger women who just don't get the point of pensions. I've seen at least 2 threads on here in the last week about claiming child benefit, for example - even if the household earns over the CB threshold, it protects NI for non-earning women and so many people just don't seem to know this..

@surlycurly.

You were very poorly advised
If there was a clause in his contract that prevented a pension share (can’t think what though), then the divorce settlement would have reflected this ie you would have received more equity to balance no share of his pension.

So I don’t have any of my ex’s huge pension. BUT I have equal value as I took the equity in our house, which coincidentally was about same vale as pension

It was the length of time that he has to be in the role for before the pension matching was valid. We split up before the date and so technically the value of the pension at that point was nil. I had it checked by two lawyers. There was nothing I could do. I still have rage about it now. I was skint because of a huge pension contribution, and I didn't even get any of it because of this elaborate clause. (Ex is in finance).

Eastie77 nails it.

I too have been shocked at the number of colleagues who haven’t realised the impact of the pensions issue. And these are intelligent women. I work in education and at least half the women where I work who are my age (50s) work part time. Either they gave up work completely for a number of years and then went back part time and never increased their hours, or they returned after maternity leave part time and never increased. And these are women whose children are now adults like mine, so it’s not an issue of wanting time off with little ones or wanting to do the school run a few times a week.

Of course, it’s their choice, but it seems to be one made with no awareness of the impact financially. We’re all now approaching retirement and at last they’re waking up to the fact that they’ve reduced their pensions massively. And we’re in the cohort where it’s an excellent final salary scheme so that’s a hell of a lot to give up!

Over the years some of these colleagues have asked me whether I can’t afford to only work 3 days a week. Well - yes, in terms of just the take home pay, I could. Tbh once the high cost nursery care for our children was behind us I could easily have worked part time and wouldn’t even have noticed a drop in our monthly income in the here and now. But I always tried to think long term, and realised the impact this would have.

The other thing i notice in my workplace is the number of mums who do return to work but remain ‘under employed’ for donkeys years ... eg- qualified teachers working as LSAs or graduates working in admin posts in the school office. They do a fabulous job, so I’m not knocking that in the slightest. But again, they usually aren’t thinking at all about the impact this will have later

And outside of my workplace I’ve lost count of the number of women friends who complacently mention that they aren’t worried about their own pension because their husband has a really good one. Again, often intelligent women who haven’t actually read the t and c of their husband’s pension and don’t realise that when he dies they will only get a percentage of it. If they’re lucky it might be half, but it may well be less.

Ime it’s no reflection on the intelligence of women. It’s about a lack of awareness. As a nation we’ve only recently woken up to the scale of the problem. Auto enrolment is a great start. But there is a lot further to go in terms of raising awareness.

The idea of chucking 2k at a woman for her pension when she gives birth is a bad idea. As I’ve already said, it’s like putting a teeny tiny sticking plaster over a haemorrhage- ie: it won’t have very much impact anyway. And worse than that it could actually be counter productive in encouraging complacency; it’s another way of taking responsibility away from the individual and lulling them into a false sense of security that the government is looking after them. The govt can’t and won’t.

Yes, in an ideal world it would be great if the economy could afford to help support SAHP a little bit, and recognise they are still contributing to society and doing a valued role. Unfortunately we don't live in an ideal world.
There is obviously the argument that why should working people get a contribution as its not their money they are contributing, it would make it more equal if your pension was only money you added personally, then its fair across the board as SAHP can also contribute to a pension.

My Mother took 6 or 7 years off from her profession and then went back full-time when we were at school.

My parents saved hard with their two salaries and I mean saved hard and obv had a v.busy life with both working full-time, raising us and looking after our house.

In their retirement they are now comfortable.

I am following the same pattern.

We all have choices at different stages in our lives about whether to have time or money and whether to have these things now or later.

No need for hand outs imo. This article raises in my mind whether, perhaps, there is a need for more education around financial planning and saving.

Although, I do think the Govt is making a great start with the workplace pension automatic enrolment scheme. So perhaps more similar schemes to this?

Ridiculous. If you aren't earning, you can't contribute. Working parrt-time is a choice. How about helping people who are compulsorily redundant and out of work for six months instead.

In any event good finabcial planning deals with the issue. I contributed as much as piss into a pension from 24 to 35. Had 8 years off (with those years continuing to counts towards my state pension) went back to work at 43 where there was an excellent pension scheme. I will be able to retire at 64 with a shade over 3/4 of my occupational pension and will be elugible for my full state pension at 67.

I'm pretty happy with that - it's 3/4 due to my choices. I don't expect the government to fund my choices. I'd rather that money went into mh care tbh especially for young people.

Wow OhTheRoses, you've done well, an inspiration.

This article raises in my mind whether, perhaps, there is a need for more education around financial planning and saving.

I 100% agree with this, when I went back to work after maternity leave I upped my pension contributions to 20% to make up for what I’d missed out on during my year off (statutory maternity pay only) and when the auto enrolment increased to 3% lots of my colleagues were complaining and saying they couldn’t afford it, but it was such a tiny amount and they all spend more than that on booze in one weekend!

MN, i believe, is slightly over represented by mums who work full time in professional roles, who are perhaps slightly older, who will have a lot of bias towards their own decision making being right. Some of us found the 'reproductive burden' took a greater toll on our bodies or had less professional roles to begin with and the decision making had a different outlook. Some of us produced children with needs that mean there is no childcare option or we are so exhasted from that care that holding down a job is harder. Pensions need to be discussed. Im not sure this particular scheme is a good idea at all but a lot of education and incentives to put money in a pension even when out of work. So match funding or greater tax relief might be an option. The burden of care is still typically falling on women. Most of the women commenting how they returned FT after one year will have used female nursery staff, nannies and childminders. What are their pensions like?. How is someone earning minimum wage in childcare dealing with their own childcare costs and pensions when they have children.

That's a very good post grasspigeons.
Couldn't agree more that more needs to be done for those who can't return to work due to caring responsibilities.

I don't think what I have done is inspirational. It was merely common sense. Incredulously I have a colleague, highly qualified professional, who refuses to contribute to a government scheme or pension at all due to the cost.

GrassPigeons, v.good points I hadn't thought of. I do think there should be help for those that need it.

Back to that issue of working out who needs help

SAHPs already have a pension deal. They get some of their partner’s pension, which is why the divorce law is at it is. It’s WOHPs who stand to lose.

We split up before the date and so technically the value of the pension at that point was nil. I had it checked by two lawyers
That is exactly the case where an actuarial valuation should have been instructed, I am shocked that none of two lawyers have advised it - the value would likely to be non-zero if properly assessed. Future benefits and options still have a financial value in the future.
If your solicitors never mentioned this, see if you can raise a professional negligence claim against them.
I cannot comprehend how a pension arrangement like that would work - i.e. nil up to a certain service date, and then a massive amount at once. What would happen if he left service before that date, would all the contributions he paid from his own salary be absorbed by the fund?

Most of the women commenting how they returned FT after one year will have used female nursery staff, nannies and childminders. What are their pensions like?
Nannies have workplace pensions as every other employee, and are not on low salaries. Majority of nannies I employed, however, preferred a slightly higher net and opted out of workplace pensions, as they planned to retire to their own country and had no need for a British pension.

What I should have added is I am glad I didn’t make any additional payments into my pension because it would just be extra money I’d have to pay out to my lousy ex-husband.

MN, have you not just taken down a thread where people were really..well rude to each other over the discussion of SAHP and working parents, it's the same drivel repeated and repeated.
I fear this will likely only go the same way 😔😔😔😔😔

@silvercuckoo.

Exactly
We paid £1k for a pension report. Best money we spent in process as clearly defined what I needed to be given in order to equal me letting go of his pension.

That PP’s situation just doesn’t make sense

spideysenses84

??

I see no rudeness on this thread at all. Just important and relevant discussion

Apparently it would have been absorbed. I don't doubt I got the shaft. There may have been another legal option. But it took 4 years to get divorced, cost me a fortune I didn't have and I came out of things with virtually nothing. I did everything I could to ensure I got a share of what I was entitled to. I saw the paperwork from his work with the nil valuation. He said he would pursue it and then chose not to when he realises that he'd get to keep it all. As it was I inherited a lot of debt and paid half of that off despite not creating a penny of it. Being told now what I already know, that I got a shitty deal, is purely designed to make me feel like an idiot. Which I'm not. I pursued it to the full capacity of my knowledge and my resources. I got it cross checked at the time. I simply couldn't pursue it any further and emotionally couldn't handle any more. It was bad enough divorcing an emotionally abusive husband anyway. The whole time the money from my house sale was in a trust and I couldn't buy anything. My rent was killing me and I needed to get the divorce finalised. I simply couldn't do any more. I needed to give my kids a home. My ex did me out of a substantial sum of money and it still rankles. But I'm not some moron who didn't check things out. Thanks for the support.

Not rtft

Structural inequality needs addressing at root but fiddling found the edges

2k for every woman who have a kid will result in a massive amount of hostility to women who have children, as demonstrated in a few of the posts I did read, when mothers face enough hostility already. While the amount of money is quite frankly going to do fuck all to plug the male /female pension gap.

Is a no from me, think a bit bigger.

Surely if you are in a couple then the extra loss should be recuperated out of family money and saved for retirement.
You don't need a fund to make provision there are lots of different ways.
Some women don't work at all and it doesn't affect their retirement funds.

Did you have a lawyer? When you say “cross checked” by whom?