Mothers Are Losing Out On Their Pension: Mothers and The Pension Gap
According to recent figures released by PensionBee, women over 45 have on average stashed away a pension pot which is a huge 22% less than their male counterparts. This backs up recent IFS research on the UK’s gender pay gap, and raises concerns about the pension pay gap, that women are more likely to struggle financially once their working years are behind them.
Why are women lagging behind men?
Studies show that the pension pots of both men and women are pretty much equal until their late 20s to mid 30s, when the savings gap begins to substantially increase. It’s no coincidence that it’s around this age that many women start to have a family, and are therefore likely to either work part-time or not at all. Hence they are less likely to contribute to their pension, or those working reduced hours do not earn enough to qualify for auto-enrolment.
The bad news is this gap only widens the older a woman gets, with a 16% disparity between the ages of 41 and 45 according to Pension Bee. After this, the pension gap broadens to 22%, with a woman’s pension pot being worth £6,000 less than their male equivalents’. The good news however, is that if your employer contributes to your workplace pension, they must carry on doing so whilst you’re getting Statutory Maternity Pay.
Although the UK gender pay gap is not exactly news, it’s only now starting to come to light that pension savings is also a big issue.
Full-time Parents and Pensions
Many parents choose not to work, and look after their children full-time due to the high cost of childcare. However this jeopardises their chances of building a healthy pension pot via workplace pension schemes.
If you are a full-time parent or stay-at-home mum to a child under 12, you are entitled to receive National Insurance Credits to contribute to your state pension. You just need to fill in this form.
But money’s so tight during maternity leave. Can I stop my pension payments?
You generally can, and it’s something you’ll need to discuss with your boss and/or HR department. However, it’s highly worth trying to avoid a lot of gaps in your history of pension contributions as you’re likely to feel the financial pinch later on in life if you don’t.
Bear in mind as well that if you choose to have a full year off work, and therefore stop making your workplace pension contributions, you may find yourself having to work longer to make up the difference. That is, of course, assuming you’re still fit and healthy enough to do so.
Tips on how to close the pension gap
There are two main ways that you might want to consider when it comes to looking after your pension pot whilst you’re on maternity leave.
1. The first way is by obtaining National Insurance Credits. You may be entitled to these credits if you’re not paying enough National Insurance to receive a full state pension when you retire. The idea of the credits is that they can fill in any gaps in your National Insurance record to ensure you keep your state pension and associated benefits.
You can see if you’re eligible for credits using the Government’s National Insurance Credits calculator
2. The second way is by reducing your pension payments. With most private pension schemes your employer should carry on paying the same pension contributions as always, which are based on the pay you usually receive. However, if you reduce your contributions and base payments on your maternity pay, your pension fund will inevitably be a little smaller.
If you take a period of leave with no pay, neither you nor your employer need to contribute, unless you decide you would like to voluntarily. Check your employment contract to confirm this.
Family budgets are always stretched when little ones come along and it’s tempting to think of your pension as an expensive extra. But be very careful before making any decisions about your pension payments, and seek financial advice to help you. It’s worth it in the end.