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Mums miss out on £20,000 in pension savings

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Written by: Emma Lunn
05/10/2020
Women who have children and work part time miss out on between £20,000 and £50,000 of pension savings.

Research by Aegon has highlighted the challenge many women face when trying to juggle work and childcare.

Analysis by the pensions and investment company shows that a woman who has two children in her early thirties, takes two years of maternity leave, and returns to work after the first child part time, could miss out on between £20,000 and £50,000 in retirement savings.

The analysis demonstrates the long-term effects of taking two years maternity leave and returning to work part time (three days a week) after the birth of the first child.

It shows that for someone who started their career earning £20,000 and who was earning about £24,000 when their first child was born, could end up missing out on between £20,000 and £50,000 by the time they reach State Pension age, depending on how many years they work part-time.

The £20,000 figure assumes part-time work for the first 10 years after the first child is born, while the £50,000 figure assumes that the woman works part-time for the remainder of her working life.

Family financial planning

The figures show the importance of planning ahead for parenthood and considering pension planning not just as an individual but also as a couple.

The analysis also shows the benefits of saving through a workplace pension as under automatic enrolment rules, every £1 saved out of take-home pay becomes £2 after the employer contribution and the tax boost from the government.

Kate Smith, head of pensions at Aegon, says: “Ante-natal classes are the tip of the iceberg when preparing for motherhood. There’s no denying that for both women and men, parenthood is life changing. But for women most commonly, it can create a gap in their retirement savings, and it’s not just the period of maternity leave.

“Many women tend to reduce their hours when returning to work due to parental responsibilities or due to the cost of childcare. This might be until school age or maybe until secondary school age depending on individual circumstances, which means a negative impact on retirement savings for a period of more than 10 years. This could be even more if there is more than one child in the family. Based on our example, a mother who never returns to full-time work faces an even greater retirement shortfall of around £50,000.”

Shared parental leave can be a help to some families as the mother gets to return to work sooner and the other parent can step in.

But one of the challenges around juggling work and the cost of childcare is where the cost of being a parent impacts pension savings.

“Women planning to take maternity leave and reduce their working hours should be prepared to make up for the breaks in their retirement savings in any way they can. Even better, they should plan ahead and start saving as much as they can before having children, to minimise the impact of pension savings gaps later on in life,” says Smith.

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