Are women in their twenties and thirties saving to little and risking poverty in retirement?
New research being launched today at the House of Lords has found that younger women are putting their own needs last and taking full responsibility for childcare costs.
As a result, many younger women are saving to little in their pensions and risking poverty during retirement in later life.
The qualitative study from leading gender equality charity, the Fawcett Society, with Dr Liam Foster and Martin Heneghan from the University of Sheffield, and supported by Scottish Widows, found that whilst most women interviewed believed they should be financially independent, many had cut their own pensions contributions to cover the costs of childcare or as a result of taking time out of work to look after children.
Often these women were relying more on their partner for a secure retirement than they realised.
According to Sam Smethers, Fawcett Society Chief Executive:
“The gender pay gap becomes a pensions gap in retirement.
“In particular women are taking a big hit on their pensions when they have children, but are not aware of the impact this will have on them in the long-term.
“Women are putting everyone else’s needs before their own, especially when it comes to who pays for childcare.
“Their baby becomes her childcare bill.”
Key findings within the report included that many decisions about pensions were underpinned by traditional ideas around male and female responsibilities.
In particular, women consistently described meeting the whole costs of childcare from their own salary, even though both working parents benefit.
Most women interviewed as part of the research were unaware of the financial consequences for themselves of the impact of unequal caring responsibilities and the savings decisions they are making.
Many interviewees sought pensions advice from men (for example, their fathers or partners) or defer to them when it comes to decision-making about pensions.
The research found that younger women display a lack of confidence, which is undermining their financial independence and decision-making.
The report suggests that gendered assumptions about maths at school, and girls and women put off by a ‘masculine’ financial environment, is partly to blame.
Another finding in the research was that student debt and the costs of a family were found to be key barriers to saving for these women.
Despite the ongoing introduction of automatic enrolment (AE) into qualifying pension schemes, this will not be enough to ensure sufficient income in later life.
The study focused on an under-explored area of research; the reasons for lower savings rates, which cannot be wholly explained by lower earnings.
It looked at a range of areas, including women’s attitudes to pension saving, how much they think they know about it, whether they prioritise saving into a pension over other forms of saving, whether they believe that they have different financial roles and responsibilities to men, and who they rely on for advice.
Recommendations to solve the problems
In publishing the report, the Fawcett Society called for several key interventions to ensure that women save more during their time spent caring for children and families.
They believe student debt and costs of childcare prevent women saving. Loan repayments and childcare voucher schemes could be converted by default into pensions contributions once they are no longer needed.
Employers and the pensions industry should send targeted information to those going on maternity, paternity or shared parental leave explaining the impact of reducing pension contributions. Small employers should receive additional help from government to do this.
The partner who stays in work (usually a man) should top up their partner’s pension contribution if they take time off to care.
According to the Fawcett Society, this is not about making women dependent but ensuring the true cost of having a family is shared between the couple and does not fall primarily on the main carer, who is usually a woman.
They say that childcare should be seen as a joint cost so that it doesn’t just come from the mother’s salary.
A woman should not be the only partner reducing or ceasing their pension payments because childcare costs make them unaffordable.
Finally, they recommend the introduction of a carer’s credit for private pensions through auto-enrolment to ensure women who take time off to care don’t find themselves in poverty in later life.
This report raises some really important issues about long-term retirement planning and the potential shortfalls which arise when women devote time or money to childcare costs in their twenties and thirties.
We will be interested to see how the recommendations made by the Fawcett Society are adopted by government and the pensions industry in the future.
