Despite a record number of women in employment, women are still less well prepared for retirement than men. The average pension pot for a 65-year-old woman in the UK is £35,800, 1/5th that of the average 65-year-old man.1 The gender pay gap (8.9%)2 is partly responsible for the difference in men and women’s pension provision but is not the only factor.
For many the “motherhood penalty” leaves them behind in retirement planning. It starts with an extended career break to care for children taken by 27.2% of new mothers compared to 1.5% of fathers.3 While women in the workforce enjoy equal pay with men at the start of their working life, gaps in employment and returning on a part time basis 4 affect their earnings potential and pension entitlement.
To address the motherhood penalty and to help women build their retirement savings, whether working or not, we have published “Gender Pension Gap – a practical guide” which looks at ways in which women of all ages can improve their retirement prospects.
- Remain in your employer’s pension scheme when on maternity leave. While in receipt of statutory maternity pay your employer must continue to pay into a pension for you. Where the pension is funded on a salary sacrifice basis, the employer is obliged to continue their contributions (including those arising from your salary sacrifice) and can’t make a deduction from statutory maternity pay. Check your employment contract to be clear on your own position.
- During an extended break from work continue to pay into a pension. Many workplace pensions are personal or stakeholder plans which can continue to receive contributions and qualify for a 20% top up from HMRC. If you don’t have a pension plan which can receive ongoing payments, open a personal or stakeholder pension, contributions can start from as little as £20 per month. Those earning below £3,600 pa can pay up to £2,880 per year into a pension and qualify for the top up of up to £720 per year. Non- taxpayers earning over £3,600 pa can contribute up to 100% of their earnings and receive basic rate tax relief.
- Those returning to work with earnings below £10,000 per year may not be automatically enrolled into the employer’s scheme but, if not, they can request to join it. Employer contributions and tax relief will increase the employee savings.
- Child benefit is non means tested but a parent needs to claim it. This provides a weekly payment of £20.70 for the first child and £13.70 for subsequent children. It can only be backdated 3 months, so fill in form CH2 on the Government website as soon as possible. This will entitle you to credits for the State pension. Each year’s credit buys £250 of annual State pension currently. The non- working parent must apply, or it is lost.
- If an adult in the household earns more than £50,000 child benefit will be taxable on a sliding scale, so that once income exceeds £60,000 it is taxed at 100%. Depending how far their income exceeds the threshold, the tax may be reduced or eliminated by them paying into a pension of their own. Alternatively, child benefit payments may be waived. If you waive payment, still complete form CH2 to get the State pension credits.
- With only one salary, or part time earnings, money may be tight. Where one is a non-taxpayer, the other earns between £12,500 and £50,000, spouses and civil partners can claim the marriage allowance. The lower earner elects to give up 10% of their personal allowance to the other, increasing take home pay by £250 per year. This can be backdated up to 4 years so £1,150 may be due.
- Childcare costs can absorb a high proportion of earnings. Take advantage of the Government subsidy of up to £2, 000 per child per year by opening a tax -free childcare account to pay for nannies, nurseries, playschemes and registered childminders, registered holiday activities. Parents with income below £100,000 and children under 12 are eligible.
The LEBC Gender Pension Gap Guide includes more tips on how women can improve their pension provision. To get your free copy email email@example.com.
Director of Public Policy
1. Insuring Women’s Futures Chartered Insurance Institute October 2019
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2. Gender Pay Gap in the UK ONS October 2019
3. 16.8% of all mothers provide full time childcare compared to 1.8% of fathers. Families and the Labour Market, ONS October 2019
4. 37.4% of mother’s work part time, compared to 6.1% of father’s, Families and the Labour Market, ONS October 2019.