New mothers should be given a £2,000 pension top-up to address the gender gap as part of reforms to workplace pensions, according to Which?
Its analysis – as part of a joint report with the Pensions Policy Institute unveiled today (3 June) – found that women who take time off to care for a child could save £15,000 less towards retirement compared to the average full-time working woman.
The research found the average working woman who took time off for childcare duties might save £68,000 towards retirement compared to £83,000 for the equivalent female worker who takes no time off.
Which? also found the average male worker might save £114,000 during their career – around a quarter more than their female counterparts. This gap increases to 40% for the “millions of women who take time off for childcare responsibilities”.
For this study, figures for the median male pension pot size were based on average earnings of £30,200 a year and savings at the minimum auto-enrolment (AE) contribution rates for 46 years. Figures for the median female pension pot size was based on an earnings of £23,400 a year, and the same AE assumptions.
The disparity exists despite National Insurance credits that ensure those with caring responsibilities remain eligible for state pension benefits, the report said.
“Similar provisions are not in place for workplace pensions, and so a £2,000 contribution plus growth would help to offset some of the loss suffered by women working part-time hours.”
Under this initiative, Which? proposed each household should be able to choose which parent or guardian’s pension scheme the contribution is made to. In the event that no scheme is nominated the contribution would go to the government-backed AE provider NEST.
Which? money editor Jenny Ross said: “If the government is committed to pension equality it should introduce a £2,000 pension contribution for first-time mothers, and also raise the minimum contribution rate for all middle-income earners to ensure they can retire with an adequate pension pot.”
The report also said while this contribution would go some way to address the pension gender gap, it believes “further reform to workplace pensions is needed to ensure savers have an adequate income in retirement”.
For example, it recommended that minimum contribution levels should rise to at least 12% for middle-income earners, adding up to £50,000 to pension pots. The current 8% rate should remain for lower income earners to avoid over-saving and financial hardship.
The People’s Pension director of policy Gregg McClymont said although 8% will not be enough there is a “fine balance to be struck”.
He added: “For some lower earners, contributions of 8% in addition to their state pensions will be enough to live on in retirement. Raising pension contributions for all savers could leave some people unnecessarily worse off now, which the report notes.”