Let’s close the pension gap
Did you know that as well as a gender pay gap, there’s also a gender pension gap? The average woman in her 20s is on course to have £100,000 less in her pension pot at retirement than a man of the same age. This is according to a report by Scottish Widows.
There are several reasons for this.
Firstly, we know that the amount people save into their workplace pension is generally a percentage of their income, so anything that reduces their income will directly affect their pension.
We also know that if you’re a mum, you’re more likely than dad to take a career break upon the arrival of your first little munchkin. If the family grows to two or three children in the subsequent five years or so, you could be at home full-time for nine or 10 years, just to get the youngest to school age.
Given the cost of childcare, it’s hardly surprising that many mums feel they are financially better off at home. In 2020, the Money Advice Service said that across the UK, the average cost of sending a toddler to nursery part time is £138 per week for 25 hours, or for full time it’s £263 per week for 50 hours. On top of that, the average cost of an after-school club for five days is £62 per week.
Add to this the fact that if mum is funding this, childcare costs could further dilute her ability to save into her pension.
Of course, it’s a delight for any mum to be at home with the toddlers, but it can devastate their efforts to save towards their retirement. In financial circles, it’s such a well-known phenomenon that we’ve named ‘the motherhood penalty’, and it is the principal cause of the ‘gender pension gap’.
The impact of the Coronavirus
If this wasn’t bad enough, things have actually got worse due to the particular challenges of the past year. The sectors hardest hit by the Covid-19 pandemic are all major employers of women – retail, pubs and restaurants, the hairdressing and beauty industry. Their shutters went down in the first lockdown, and many never went up again. Women were the ones who lost out.
In fact, The Institute for Fiscal Studies reported in 2020 that “Of parents who were in paid work prior to the lockdown, mothers are one-and-a-half times more likely than fathers to have either lost their job or quit since the lockdown began. They are also more likely to have been furloughed.”
The State pension
On the state pension side, things have also been unkind to women, as they must now wait much longer before the age when it becomes available to them.
State pension age used to be 60 for women and 65 for men, but then the ages were equalised, and a generation of women who thought they would be able to retire at 60 suddenly faced an additional five years at work. The age is rising further, too. Under the Pensions Act 2007, it will rise to 67 between 2026 and 2028, and to 68 between 2044 and 2046. With further increases in the planning, they say that a child or grandchild born this year may be 70 before they can draw their state pension.
It is a fact that many mums are destined to become a new generation of ‘grey collar workers’, forced to work on longer than they’d planned.
Finally, tax
An imbalance in a couple’s pension provision can also have tax implications. If the husband has by far the larger pension, he could end up paying 40% tax on part of it when he retires, which could have been avoided if their pension income had been more evenly divided.
There is also the fact that, in many households, pensions seem to be a taboo subject. Many couples tend not to sit down together and discuss their pensions, to assess if jointly they will have a comfortable retirement.
For mum there is also a critical question: what pension provision will I get, if my husband dies before me?
These are the important points we clarify for our clients every day – and by helping them to bridge the gap before it’s too late, we give them the peace of mind that they’ll have more than enough to live on in retirement despite the statistics against them.
Give us a ring if you’d like to know more.