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.

@kpo58,
I does not have to be always the lower earner, there are so many other factors to consider. Are both earners jobs flexible or just the one, could both go part time or one change jobs, to a more flexible situation. Just saying the lowest earner, usually the woman, has to give up work is just keeping the status quo. In some circumstances that may well be true but it's important to know that this short term choice has long term consequences financially.

Bar the legislated two (or four in a manual job) weeks maternity leave there is nothing stopping the mother returning to work immediately after this and the father taking the remaining thirty something weeks paid maternity leave. Don't conflate this with paternity leave which is something different.
However, in my non scientific and purely anecdotal opinion the women I know and have spoken to do not want to share their maternity leave even though the legislation is in place.

Like @Gatoadigrado said, I got absolutely nothing in terms of childcare and I think it was 18 weeks maternity leave, the legislation for new mothers has never been better. I certainly don't advocate returning to that however it does irk me somewhat when people complain that what is on offer now is simply not good enough and the state should intervene even more.

The only useful suggestion I could come up with to pay for any increased benefits would be remove higher rate tax rebate on pension contributions, limiting everyone to only 20%.

I'm sorry but this is ridiculous. By the same notion, should childless women be given maternity leave and pay as they've 'missed out' on this benefit?

I wonder if it would be possible to mandate that if a mother gives up work to care for children, all future pension contributions made by the father of those children, until such time as she us back in work earning the same (adjusted for inflation) as she did before, must be equally divided between his own pension and a pension in the woman's name. This to apply whether or not the man and woman are in a relationship.

There would need to be appropriate fractions devised for situations where a man fathers children on more than one woman, or where a woman has children by more than one man. The idea needs a little refining.

Nice idea Yoba, but given that it seems so difficult to get absent fathers to contribute to the costs of actually bringing their own children up, I think expecting them to contribute to a second pension is a step too far.

There are also lots of other difficulties with your idea. For a start, a workplace pension will have contributions made by the employer (which may be double what the employee is making) so how would that work?
Plus, a contribution split between two pensions wouldn’t go very far at all. Many people seriously underestimate the amount they need to save each month in the first place.

The real solution is for both parents to take seriously the fact that now that people are living longer, and may well have a retirement stretching into 20 or so years, the only answer is to prepare for it by paying into your own pension each month. If having a career break or working part time temporarily is important to you then you need to factor that in, and accept that you’ll take a financial hit to some extent.

Unless you’re born into wealth, it’s just not realistic nowadays to expect one parent to stop working when they have children and never work again, or to only ever work very part time or only in low paid ‘fit round the kids’ type jobs.

And to be fair (aside from people who have major caring responsibility for a disabled child etc) there is no reason why a healthy adult shouldn’t expect to be working to their full potential for most of their adult life.

Whilst I agree with the majority on this thread I just wonder if by its very nature it is a self selecting exercise . The fact that so many of us have mentioned how few SAHM parents, refuced hours female employees actually regard their financial future with any real concern or look in to the possible scenarios, makes me think it’s highly unlikely they would read a thread such as this. They may already think “ well I have DH’s pension “ and not even open the thread. So responses may be skewed.

Unless you’re born into wealth, it’s just not realistic nowadays to expect one parent to stop working when they have children and never work again, or to only ever work very part time or only in low paid ‘fit round the kids’ type jobs.

And to be fair (aside from people who have major caring responsibility for a disabled child etc) there is no reason why a healthy adult shouldn’t expect to be working to their full potential for most of their adult life.

Mostly I agree with this. But I'm dismayed at the number of women who end up in poverty in old age while the father of their children lives very comfortably on the fat pension built up while she sacrificed.

When a married couple divorce the pension is considered an asset of the marriage and is part of what gets split evenly between them (it's not unusual for one to the the house and one to get the pension pot as they are often of similar value) but when a couple is unmarried they have no claim on each others pension if they split. Maybe instead of trying to equalise things when contributions are made, there should instead be a mechanism for a parent who sacrificed career opportunities for childcare to lodge a claim on the final retirement pot of their exDP at the point of his retirement, even if they weren't married.

I hear what you’re saying yoba, but I think the days of the wife earning a pittance (or nothing) for decades while her husband zooms ahead in his career and amasses a nice fat pension are behind us.

It was more understandable when that happened in the days of fewer childcare options, but nowadays there really is no need for a woman to take years and years out of the workplace. Most schools have breakfast clubs, after school provision plus of course childminders are regulated now, so like I said it’s only in very specific circumstances (eg very disabled child) where one parent may need to severely scale back their working potential.

@Gatoadigrado I think with housing costs, commuting costs and aspirations like holidays etc make one income less manageable these days too. Not to mention the fact being home isn't the all encompassing role it used to be, when clothes were hand washed, grocery shopping done every day due to lack of refrigeration etc etc.

I don’t agree.

In an economy where the nhs is stretched to breaking and children’s services are barely coping with the numbers of neglected children, I think giving a woman £2k if they have a baby is daft. We don’t need more babies, we need affordable childcare and for the children we already have to receive better care/education.

@Gatoadigrado - I know a large number of Mothers who have decided to SAH even with kids of school age. Various reasons bandied about eg not cost effective with travel, ASC , need to enable husbands’ careers etc. None of them ever contemplate their own pensions. They just assume they will share their DHs. Burying heads in sand stuff. Loads of mums on here too that think that way.

I'm 33, only one DC so far (one on the way), both DH and I work full-time in professional roles and we are both exhausted! No disabilities/additional needs or anything like that.

After this DC is born I'm sure that one or both of us will either go part-time or take a career break. I don't have many friends with one DC where both parents are working full-time, and I can't think of any who do this with two DC. So I don't think we are unusual.

I'm impressed at these parents who (according to this thread) find that thanks to childcare they are both able to carry on working full-time to their full potential as soon as mat leave finishes. To me it seems almost superhuman!

I don't think there's anything wrong with taking a step back for a while when DC are smaller. For me it's only problematic that it's predominantly women who make all the sacrifices and whilst change is beginning to happen with shared parental leave etc, it's very slow.

I don't see why we should be striving for a situation where everyone is working full-time and DC spend most mornings/afternoons/school holidays childcare. Great if that works for your family of course but I don't see why everyone should be pushed in that direction.

@pennypineapple "I don't think there's anything wrong with taking a step back for a while" that's the whole point of this thread, it is causing financial inequality and issues in retirement for the care provider, that is something "wrong" right there.

@avalanching yes but I don't think the solution to that is to say "oh well, everyone who possibly can should just work full time then".

@pennypineapple no, not everyone, but many people should be reflecting more carefully on their financial position long term and the impact of stepping out the work place, we can't afford to do it solely on ideological beliefs.

Pennypineapple I think you’ve answered the problem yourself: it’s predominantly women who take this hit, and it impacts on them financially.

Also while of course your view is completely valid, the fact is that ‘superhuman’ is a purely subjective thing. Some women will happily slot back into full time work after a 6 month maternity leave while others feel they need a full year off, and even then might not feel able to manage full time.

It’s not a question of any particular way being better- it’s about recognising the impact of what we do.

We’re also all operating within our own unique constraints anyway, and the era when we give birth. I personally dropped to 3 days a week while my babies were small (and yes it’s impacted on my pension which is why I stepped back up to full time the moment they were all in school.) But of course this was back in the day when ML was very short, I was back working when dd1 was 12 weeks old and still bf regularly. Also paternity leave didn’t exist; neither did transferable leave, so I had to operate within that context. If I were giving birth now, in 2019, my preferred option would be to take 6 months leave and transfer maybe 3 or 4 months to my dh. I’d go back at least 4 days a week too, because it would be a whole lot easier without still doing night feeds.

The further this thread continues (and it’s an interesting discussion I must say) the more the word ‘education’ keeps popping up. That’s the real solution: educating women about the impact of decisions they make so that they go into eyes open and considering not just the here and now but the future too

I don't see why we should be striving for a situation where everyone is working full-time and DC spend most mornings/afternoons/school holidays childcare. Great if that works for your family of course but I don't see why everyone should be pushed in that direction.

I completely agree with this, I don't see how putting your children in clubs and childcare is the sign of a successful society
I would absolutely hate having to send my child to a breakfast club, an after school club and holidays childcare. I know very few working parents who between them and their husband still don't have to use childcare in the holidays.
But that's just what I think is best and i wouldn't have had children if I couldn't be at home for them in the early years and be there for them without extra clubs. That's not to say it is better for some children to go to nursery and clubs.

Again it's an informed personal choice. My choice is to stay a SAHP during the baby years and then finding work that fits around the children once at school. SAHP can still pay into a private pension as a working parent does, obviously they don't have the employer to top up their pension for them, but still a contribution.

It would be great if we had a strong enough economy where the government would claim the correct finances from the right places and appropriated the money's correctly but sadly we don't and we can't even finance our own NHS correctly. So probably not a priority.

Tigger - surely the sign of a successful society is one where children are raised into well adjusted, successful citizens? Not whether they’ve been to nursery, or after school club?!

If on a personal level you feel you don’t want to use any form of childcare then that’s up to you as a couple to discuss and plan for. But obviously there will be a financial impact.

The real issue is about the huge number of women who don’t realise until too late that they’ve sabotaged their chance of a later life without financial worries. The stats show that women are vastly underprepared for their later life than men, and that’s an urgent issue that needs addressing through raising awareness

@tigger001 would you give over on the kids' clubs for heaven sake, you've been pulled up on that on another thread. You can paint a picture of working parents using childcare all the time as much as you want if that is what your insecurity needs to validate your decisions, but your "experience" of the people you "know" is NOT as common as you are making out. If you want to run along and grab some stats for that, have at it.

I just can’t believe how difficult you seem to find it Tigger to grasp such a basic concept. This isn’t just about you and your family and what you want right now. How will we ever progress with everyone just thinking of themselves and their family and not the wider picture of contribution to society in terms of money, skills, progress towards equality.

" A £2,000 cash injection could grow to as much as £7,500 if the funds stay invested for thirty or forty years "

Good grief! I would hope that after 40 years of investment, it would be worth a heck of a lot more than £7.5k!!

@avalanching I will continue to give my opinion as often as these threads continue to happen and the discussion being had, just as you do, sadly you do not get to tell people what they can and cannot say.

For the record I have no insecurities in the choices I have made, it sits very comfortably with me how I have prioritised my life and it is not myself who is getting emotional and personal about it.

You did infact pull me up on this on the previous thread, and you were advised on this thread by teachers, that it is in fact common that children are placed in morning clubs and after school clubs or both. So just because it doesn't happen to you or these you know. In the real world it does happen often.
Why you insist on using quotation marks around the fact I know people who use these clubs, is very strange as if to insinuate I am lying, when it happened on the last thread I even explained who these people were.

@Pamplemousecat I can see the bigger picture. I know it is simply not about me and my family, which is why I have stated it would not be a priority for the government to contribute to SAHP as they have far more important issues to address.

I believe being a SAHP does contribute to society, it may not add to financially to the economy. I do believe in equality and I don't think anyone should be made to stay at home, I do believe everybody should be entitled to choice, I don't think a parent who wants to stay at home with their child should be forced back into their job, I also don't agree currently that economy should make pension payment for SAHP.

I also think a lot of women do know the financial implications of staying out of the work place but make in informed choice.

@Gatoadigrado I completely agree in awareness. It should definitely be an informed choice.

If women are not aware of the fact that they are not paying into a pension, reduces their pension once they retire, then yes that should be made more clear.

@tigger001 great stats there, good work. The difference is you're speaking about things you don't understand. You don't understand how working parents juggle their lives, you haven't done it, your using other people's apparent experiences from your point of view, I've told you mine and told you how I barely use childcare. I've tried to explain to you how no working mum's experience is the same, just as I wouldn't expect all SAHM's to have the same situation, but still you chime in with "oh well I couldn't possibly put my child in childcare all through the holidays and after school". I literally don't know a single person who does this, as a school governor over seeing a school club and someone with many working parent friends. No one is being emotional I'm just bored of seeing the same ignorant rhetoric, fine you want to be a SAHM, own it, you don't need to make assumptions about other people's situations and then judge them to make yourself feel better about yours.

Tigger - a couple of points. Personally I don’t know any parent who puts their child into childcare for every school holiday. Simply because the minimum annual leave entitlement is 28 days (ie 5 weeks and 3 days) and as a parent of school kids you’d be nuts if you never took any of your annual leave when your children were off school. So, between the parents they have minimum 56 days (ie 11 weeks and a day) annual leave, so most working parents will take some of their leave at separate times.

Anyway, all of that is a bit by the by, because surely the most important thing about raising children is that they grow up well adjusted, resilient human beings. And that can happen (or not) whether they go to nursery/ childminder/ breakfast club/ holiday club. There are excellent WOHP and excellent SAHP.

The issue here is about the financial impact of the decisions people make. And so long as women are disproportionally impacted negatively it’s a really important debate to have.