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 £51,500, 1/3rd 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 leave start of their working life, gaps in employment and returning on a part time basis 4 affect their earnings potential and pension entitlement.
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 financial wellbeing. Here are some of our top tips for mothers to help close the gap.
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.
Maintain pension savings even if not earning
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 savings after you have left the workplace, and which 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 with this same 20% top up added so each £8 saved becomes worth £10.
Join Workplace schemes
On returning to work with earnings below £10,000 per year you may not be automatically enrolled into the employer’s scheme, but you can request to join it. Employer contributions and tax relief will add to your own savings.
Apply for child benefit to get State pension credits
Child benefit is non means tested and a universal benefit, but a parent needs to claim it. This provides a weekly payment of £21.05 for the first child and £13.95 for subsequent children. It can only be backdated 3 months, so fill in form CH2 on the Government website as soon as possible after the birth. This will also entitle you to credits for the State pension during the time you are not paying national insurance and can be claimed until your child is 12, (17 if disabled). Each year’s credit buys £260 of annual State pension currently. The non- working parent must apply, or the credit is lost.
Child benefit is usually paid tax free but can be taxed if one adult in the household has income over £50,099 per year. This tax charge can be reduced in several ways, Parents Can Eliminate Child Benefit Tax.
Claim tax allowances
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 up to £250 per year. This can be backdated up to 4 years so up to £1,188 may be due if eligible for all 4 years. Married Couples and Civil Partners Tax Allowances
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 who each have income below £100,000 and children under 12 are eligible. How Childcare Schemes Can Help Parents Return to Work
The LEBC Gender Pension Gap Guide includes more tips on how women can improve their pension provision. To get your free copy click here.
Director of Public Policy
Director of Public Policy
1. Insuring Women’s Futures Chartered Insurance Institute October 2019
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.