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.

@Lovemenorca I had two. One of whom I didn't think knew enough and so I then switched lawyer to a family lawyer rather than my local solicitor. He also checked the status of the contact and the claim that the person value was nil. Again, I'm not an idiot. I paid a lot of money to some educated people to help me try and fight a very difficult man determined to shaft me. This is NOT the point of this thread- to put me under the microscope. I'm now working full time to make up the short fall, and contributing as much as I can to my pension. There will still be a gap, however at least I'm lucky enough to have a reasonable job.

*pension value

@surlycurly
I am sorry that you perceived this as a personal attack, it absolutely wasn't my intention. Quite the opposite, I tried to be helpful - it well could be that you actually have grounds for a professional negligence claim against your family law solicitor, which may be helpful in restoring the financial balance.
You are absolutely correct that you cannot be expected to be an expert in family law, and that is why you (absolutely correctly) sought a professional opinion. Family law solicitors are also not experts in pensions valuation, that's why, if in any doubt at all, they have to insist on involving actuaries, who are experts on pension valuations.
It is like a GP diagnosing a patient with a heart condition, and then deciding to perform a bypass surgery themselves during a break in their daily clinic routine.
Again, I really apologise if any of.my comments made you feel uncomfortable - I only piped in as I am close to the pensions industry myself. I've been through a very stressful divorce myself, and can fully relate to the feeling of "I'll just bail myself out of this hell, no matter how much it costs me"

It's not a bung that mothers need, along with everyone else they need proper financial education. It never ceases to amaze me how highly educated and intelligent people know so little about money and the impact their choices have on their financial situation.

Sharing maternity leave with the father is already possible. This £2000 gift is a backward step that will just reinforce the societal expectation that it's the mothers responsibility for child care rather than shared.
Educate that choices such as part time work have huge financial consequences for the future and you need to account for those choices in planning for the future.
Simply expecting the Government to throw money at a problem has never been a solution for anything, indeed it sometimes creates more problems.

I completely disagree. It is your choice to have a child, your choice to cut your hours, why should you expect a hand out to support this?

Plenty of people have to work reduced hours for many different reasons- health, choice, other caring responsibilities, study etc. Why should mothers be given special treatment?

I think that's a bit short sided tbh

Men want children too

If all the women said no, society/ men would not sanction it

This is a structural inequality as only women can have babies and the work/ reward system was set up by men for men

Expecting women to procreate (which society does, at a population level) and also expecting them to lose out and often struggle because of it is a structural inequality

I believe it needs addressing

It's exacerbated as we live longer (also seemingly jnescapablec biology +some socialm things we tend to live more healthily).

There are a lot of elderly women in poverty, who does this benefit? Does it matter or not?

Kamelo is spot on.

It boils down to better education about the long term impacts.

One thing that surprises me is that despite increasingly flexible legislation around maternity, so many women still default to doing so much more of the caring responsibilities. As kamelo says, it’s been possible for several years now for a the parents to share the maternity leave, but the take up of this option has been shockingly low. Whenever this is discussed on MN - the option of transferring say, the final 3 or even 6 months of ML to the father, the usual reason given as to why it’s not used is
Financial: The couple would be on a bit of a drop in income during the period he’s off. Which may well be true in the very short term, but it ignores the fact that there are decades of working life ahead, and that by giving the woman’s career the same status as the man’s, it’s not only demonstrating an important principle, it’s also highly likely to lead to a better balance of earning and caring for both partners. If it became the expected norm that dad would take the last few months of parental leave, it would have a massive impact on the structural inequality and would mean women took their own earning more seriously. (Aside from this I also think it would be a massive benefit to the child, because a dad who is primary carer for several months within the first year of the child’s life is more likely to continue being a hands on dad.)

When you look at shared parental leave, extended maternity leave of up to a year, the free hours of childcare which kick in at age 3 .... in all honestly, the framework is there to support women working, certainly far more than at any point in the past. These are all things that women like me (who got 3 months maternity leave and no free childcare hours) would have given our right arm for. But it requires women to takes up the opportunities.

I honestly think chucking 2k into a woman’s pension pot is not only stupid in that it’s hardly going to make a dent. It’s also potentially disempowering women because it sends out the message that poor little women can’t be expected to achieve financial security. It would exacerbate the issue: treating women as though they’re victims who need the state to prop them up. A far better way is to keep hammering home the message to women that the legislation is in place to enable them to give more caring responsibilities to the baby’s father. And keep up the message to think long term, not just the next few months or years. Clear examples showing the impact of stopping work for varying periods of time would be helpful to enable women to make informed choices. Education is key, not hand outs.

Its alright guys. I’ll run myself ragged returning to work full time, giving 2/3rds of my earnings to nursery and later missing out on assemblies, sports days, time with my children so I can contribute to your pension pots if you’d rather stay at home.

When you look at shared parental leave, extended maternity leave of up to a year, the free hours of childcare which kick in at age 3 .... in all honestly, the framework is there to support women working,

Well actually there isn't. Maternity leave, although can be taken up to a year off has a large chunk of it unpaid, so few people can afford to do that.

The pay for parental leave is laughable and completely unaffordable for most people, which is why so many men only take the 2 weeks.

The 30 hours free childcare is term time only and doesn't include extras like food (where the nursery my DD goes to charges £12 per day for food) and comes way too late, so that people have already had to give up their jobs as they were loosing too much money from the household budget to afford it when they wanted to go back to work after maternity leave.

It's almost like the government don't want women to work or men to take parental leave. They also are trying their hardest to stop people from saving up for a pension by acting this way and by letting people opt out and reclaim their pension contributions. In some schemes they are also put under pressure to have a refund if they have less than 2 years of service, rather than transfering it at a later date.

I think the first step before handing out money is informing or reminding parents of the impact on pensions. I had no idea, I was early 20s when I had mine, I'm an intelligent woman in a good career with generally good financial practices but my understanding of pensions was limited, and frankly I didn't care in my 20s!

How many times do we hear "I stayed home because after childcare I only have £100 left, it's not worth it" but how many times have they worked out their pension in that situation? I know a mother who said exactly that to me and she was civil service, what she failed to recognise was that her employer was actually putting about £600 a month into a pension for her, so it actually wasn't as sound a financial decision as she felt it was. Although obviously we aren't making these decisions based on finances alone, I don't believe the decisions are being made fully informed.

Education is the first step.

Kpo58 everything you describe in your post confirms what I said... the terms have never been better. Statutory maternity pay is for up to 39 weeks. It really isn’t that long since women only had 12 weeks off altogether.
As for complaining that the 30 hours free care is term time only and gosh how awful you have to pay for extras ... Christ, having paid full nursery fees for 51 weeks a year until my kids were starting school, I’d think I’d won the lottery if someone has offered me what’s available now.

Of course some people will always want more. Give them 6 months maternity leave and they’ll want 9. Give them 9 and they’ll want 12. Give them 12 and they’ll want 18...

Systems have to be workable for employers as well as employees, and affordable. FWIW I think the balance now is about right. Of course it’s going to cost to have a child... why wouldn’t it?

The solution is absolutely not to throw more money (from where anyway?) especially when it’s going to make hardly any impact. The solution as almost every poster here has identified is education. Empowering women to make decisions on the basis of long term as well as short term

I currently work part time. After putting my 2 DC into nursery, I'm £3k per year worse off compared to not working. If I worked full time, I'd be at least £6k per year worse off, compared to if I didn't work.

Working full time for me is completely unaffordable. Even part time puts a heavy strain on the household income, but at least it means I'm still putting something, if not alot onto my pension.

They really need to subsidise childcare properly and also have childcare provision around schools for everyone who needs/wants it, otherwise we will never sort.out the inequality.

When couples make the calculation about nursery costs do they take into account BOTH partners’ incomes? So often it sounds like it’s only the mother’s income in the calculation. It should come out of joint income. Staying in work, even if part time, not only pays towards a pension, it also keeps your career going so you don’t lose skills and don’t find it hard to return later.

Problem is @avalanching that it’s not just about educating women I think there are some women who trot out the line about it being “ a false economy so they and their DH have jointly decided it’s best they are SAHM during the kids’ school years too due to clubs, after school care etc. It’s more to reassure themselves and give in to the easier option. I don’t refer here to SAHM with children who have disabilities btw. It’s changing a whole mindset. Also someone I think it was tigger mentioned it was time we showed our appreciation for SAHM and their valuable contribution to society. The problem is whilst it may be valued within their own family, I can say with confidence no one else will applaud your choice as it is a self motivated one that benefits no one else but your nuclear family. Staying at home at school age has no societal benefit at all, it is purely family motivated.

It’s about changing a whole mindset

I agree the pension penalty is a real issue but I don't think this is the right solution. It needs to be better balanced so that it isn't a subsidy for the rich, and so that it doesn't become an additional entrenchment of the assumption that childcare is intrinsically a woman's responsibility rather than the duty of both parents. This proposal does nothing to support the less sexist families where both parents rearrange their hours to ensure neither partner takes a disproportionate share of career damage, or those where the woman is the main breadwinner and the man works part time to manage childcare. We need less sexism in legislation whilst also providing more opportunities for culturally endemic sexism to be challenged and overcome. Any initiatives to address the very real and significant differences between pension outcomes need to be built in a way that fits with building a more equitable future.

@Pamplemousecat I completely agree with what you're saying, but if people were more informed about pensions then hopefully they would either a) realise or b) be pulled up on by others better informed on the financial implications of opting out of pensions. But I agree, I think finances are often a guise to validate decisions and deliberately ignorantly calculated to get the answers they desire.

Avalancing: ‘ But I agree, I think finances are often a guise to validate decisions and deliberately ignorantly calculated to get the answers they desire.’

Yes that’s very true, as evidenced by the fact that people in the same situation don’t necessarily make the same decisions. I’ve lost count of the number of times on MN and in RL that women have said they won’t go back to work because they’ll only be about £100 better off after childcare, or that they’ll only break even. But clearly many women do return to work even if it doesn’t increase the family income (or even when it decreases it in the here and now)
I’m all for freedom of choice, but it’s wise to factor in the future as well as the here and now.

And if a woman doesn’t want to return to work at all, or doesn’t want to transfer some of her leave to the baby’s dad, or doesn’t want to work full time, then be honest about it- don’t dress it up as a financial decision if you’re making it as a preferred choice.

@Gatoadigrado "And if a woman doesn’t want to return to work at all, or doesn’t want to transfer some of her leave to the baby’s dad, or doesn’t want to work full time, then be honest about it- don’t dress it up as a financial decision if you’re making it as a preferred choice." I agree with this wholeheartedly.

Exactly and don’t dress up the decision as “ SAHM equals taxi driver, chef, nanny etc”. It is really offensive to people who do these as professions. You are working for your family on a much much reduced scale and just doing it for yourselves. We shouldn’t be looking to encourage this with financial bungs. Christ look at the state of the NHS right now. It’s on it’s knees. We do not need to be giving money away to people who have made poor decisions.

When couples make the calculation about nursery costs do they take into account BOTH partners’ incomes?

Of course they do. If for example a couple needs £14k per year to live on (excluding childcare) and DH salary is 17k and the DW salary is 13k and childcare costs is 17k a year, then they either go bankrupt or the lowest earner has to give up their job. There isn't a choice for many people on keeping their job with such high childcare costs.

Not a great example Kpo58, because to have childcare costs of 17k a year you’re describing people having more than one child, or living in one of the most expensive parts of the U.K. and frankly you’d be nuts to do that if you’re earning 13k (which sounds below NMW anyway)

I stand by my point: there is more help now than at any time in history. Go back 25 or so years and you’d be paying a hell of a lot more for childcare because there were no free hours, and shorter ML in the first place so childcare had to be paid over a significantly longer period.

Of course in an ideal world childcare would be totally free, women could have as much time as they wanted off without any impact on their pension.... erm, except this all has to be paid for somehow.

It’s about balancing a reasonable level of support with motivating people to take responsibility for themselves. If you’re earning only 13k a year, why not aim for higher paid work? Or limit your family? Or space your family out so you wait for 30 free hours before having another baby? Or move to a part of the U.K. where a low wage will stretch further and childcare will be cheaper?

I’m not saying all of these are easy. But couples have to take some level of financial responsibility when deciding to have children. Of course a child is going to cost. How can it not?

Not everyone is qualified to do better paid work or are able to do so.

Not everyone can afford to uproot their family and find 2 new jobs in another part of the country (also the locals do tend to want jobs too) and loose all friends and family connections.

I am limiting my family to 2. I didn't want an only as I hated it being one myself, but equally I know that I can't afford more. Also I want my children to have a close relationship and not be at completely different stages of life to each other which is why I'm not going for a 3 or 4 year + gap.

The 30 hours free childcare doesn't kick in as soon as they turn 3. It's the school team AFTER they turn 3, so if you have a September baby, you'll be waiting til January before you get any help.

Kpo- I have a September baby and had to pay full childcare fees from when she was 12 weeks old until she started school two weeks before her 5th birthday. Massive progress had been made over the last couple of decades in subsidising childcare, extending maternity leave, introducing paternity leave, allowing shared leave...

Absolutely fine to campaign for further improvements, but important to recognise that it all has to be paid for out of taxes and you can only push tax payers so far or they’ll vote with their feet and will deliberately earn below thresholds - which ultimately helps nobody.

I feel the system is pretty well balanced now to protect the interests of employees, employers, tax payers, mothers, fathers and non- parents too, because they are all stakeholders in this.

I disagree. Men and women make their own financial decisions. Its common sense that the less you pay into savings the less you will get out.

Childcare costs being high is no secret.

Why should every woman be given £2k before she has even decided whether to work pt or not.