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Gregg McClymont: New mums must be saved from gender pensions gap

Without a coherent approach to policy, serious issues will continue

There is an increasing focus on gender equality, and pensions policy is no different. While we have long known that, on average, women’s pension pots are smaller than those belonging to men, the sheer size of the gap is now making headlines.

According to the Chartered Insurance Institute, a typical woman aged between 65 and 69 has overall pensions wealth of £35,700, just a fifth of that of a man the same age.

The average female pensioner is £7,000 a year worse off than their male equivalent, making the gender pensions gap a frighteningly huge 39.5 per cent, according to Prospect – more than double the size of the gender pay gap.

The factors which drive this chasm are complex. Our latest research with more than 2,000 mothers found nearly half reduced their hours after having a child, more than a third left work altogether, and more than one in five returned to the workplace in a downgraded role. In a contributory workplace pension system, the result is lower or halted contributions and smaller pots.

Many women wanted to work fewer hours to spend more time with their children, with four in 10 pointing to the heavy cost of childcare as another disincentive to going back to work.

On average, childcare in the UK is more expensive than anywhere else in Europe.

A woman in London with a child under two, who earns the median full-time income, will pay 60 per cent of her after-tax earnings towards childcare, commuting and associated expenses, reducing take-home pay to £9,700 per year or a little over £800 per calendar month.

And these figures do not improve much once you move away from the capital, with mothers paying 44 per cent of after-tax income towards childcare costs on average, leaving just £13,000 a year to live on.

Easy answers are hard to come by, with pensions policy alone unable to solve this issue. Better provision of affordable childcare across the UK is vital to ensure that, if mothers do want to return to work, it makes financial sense for them to do this.

Introducing a single, specific earmarked grant to councils to cover the cost of the existing policy which guarantees 30 hours per week of care for all three- and four-year-olds would help.

More should also be done to attract childcare providers to open premises on high streets, especially those blighted by high levels of unoccupied retail units.

While not a silver bullet, pensions policy can help too. Cutting the auto-enrolment earnings trigger to the primary National Insurance threshold of £8,628 would bring in half a million new pension savers, three quarters of whom would be women.

A timetable for the removal of the lower qualifying earnings band so that all those automatically enrolled contribute from the first pound of earnings is key and would remove the entitled worker category.

This means all those earning below the earnings trigger who opt into auto-enrolment would be entitled to an employer contribution. The government has committed to this reform but has not yet introduced it.

Likewise, fixing the net-pay tax quirk which has left millions of lower earners not receiving the tax relief they are due would significantly benefit women.

Without a clear and coherent approach across labour market and pensions policy, this very real and present problem will continue, even if changes to the second state pension made in the 2000s, and taken on into the flat-rate state pension, increase gender fairness.

We must continue to talk about how we can close the gender pensions gap in the months and years to come, as it is not something that will go away without serious reform.

Gregg McClymont is director of policy and external affairs at B&CE, provider of The People’s Pension


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Unfortunately a lot of men will never believe women have been treated unfairly in regard to pensions. No matter what statistics you give them.

  2. With an ever increasing population size, would a more sensible approach not be to make those thinking of having children question whether or not they can actually afford them, rather than expecting everyone else to grant further subsidies? Bearing in mind the tax payer already provides free education from 5-15 and other child benefits to parents.
    Thankfully ae wasn’t around when our 2 were so young, but dropping the minimum threshold would almost certainly have taken away any spare cash we had and locking it away behind pension law at a time when we were struggling to survive would have ruined us financially.
    As we know, historically the Father continued to work and build up his pension whilst the Mother took long career breaks to look after the children, but this just isn’t the case anymore and I doubt very much that there will be a gender pensions gap in the Y and Z generations.
    Ironically, my Wife’s pension (even after 2 children who are now both of school age) dwarfs mine, but it’s the mortgage first and then squirrel away what we can when we can afford it (i.e. in the 15 year gap we have between 45-60).

  3. Just a couple of off-the-cuff thoughts in passing (without seeking to play to Mr Schan`s stereotype):

    (1) Is the situation described likely to be ameliorated by Pension Freedoms, given a male`s propensity to turn up his toes sooner than his female counterpart?

    (2) Re the statement “A woman in London with a child under two, who earns the median full-time income, will pay 60 per cent of her after-tax earnings towards childcare…”
    It may well be a Northern middle-aged view, but aren`t the majority of women with children either married or in a partnership? – in which event childcare requirements might justifiably be regarded as a household responsibility involving more than income (rather than identifying just one source of earnings to make a point). Just saying ….

  4. Does it matter whether one partner or the other has the larger pension pot at retirement? If they are married or in a relationship on death the other party can inherit their pot. On divorce pensions can be shared equally. Problem is where a couple isn’t married or in a civil partnership as there is no such thing as a common-law wife/husband.

  5. Has anyone looked at the difference in average pension fund values between men who have children and men who do not? I would hazard a guess that there would also be a “pensions gap”.

    Is this not just more about the fact that the cost of having children, irrespective of sex, means that you are able to save less?

    As always, I am happy to be proven wrong.

  6. I would hasten to add that the “net-pay tax quirk” is actually a national scandal.

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