The average monthly cost of childcare in the UK is more than the cost of the average mortgage, which serves as a stark reminder of the financial burden facing many families.
Childcare costs can be so enormous that it often makes financial sense for one parent to take a career break or work part-time to care for the kids. More often than not, this caring responsibility falls to women.
While the proportion of women in employment is at a record high of 71.4 per cent, a staggering 41 per cent work part-time, compared to 13 per cent of men.
The gender pay gap is both the cause of this, because men tend to earn more than women, and also the effect, as women are more likely than men to work part-time to take care of the kids, which therefore reduces their earnings.
But while the notable inequalities around pay are well-documented, there is a lesser known knock-on effect: the gender pension gap.
By the time that women reach the age of 60, they typically have £51,100 saved into a pension, which is just a third of an average man’s £156,500 pot, according to figures from Now Pensions. And this is exacerbated by the fact that women tend to live longer than men, meaning that their money has to stretch further.
Of course, women who reduce their hours to care for children will inevitably contribute less into their pensions, and for some, this means that they no longer meet the £10,000 annual earnings threshold needed to trigger auto-enrolment. For women on long career breaks, they may have no pension contributions at all.
And while you could argue that people can sign up to a private pension scheme, many new parents simply don’t have the kind of income that allows them to set savings aside each month.
PwC’s Jane Portas points out that the gender pay gap isn’t expected to close until 2050. “This means that women in the workplace today can still expect a gender pension gap in 30-odd years time, so that’s something we need to take action on.”
So what’s the answer to this issue?
Baroness Deborah Stedman-Scott, minister at the Department for Work and Pensions, says that progress relies on partnerships between government, financial services, and employers. “None of us are as clever as all of us – everyone needs to get involved,” she adds.
There’s clearly scope for businesses to do more by helping women who are returning to work after taking time out to care for children, partly by ensuring that they are able to progress in their careers.
Portas highlights that when women are making a decision about whether to return to work, the loss of pension wealth is rarely a factor they consider. “At this pivotal time, women are not thinking about their pensions. So there is a really important role for the workplace in prompting employees to think about their financial lives during these key moments, because they can have long-term implications.” In fact, as a result of this pension deficit, the PwC partner points out that women often struggle to pay for their own care in retirement.
Input from the government is also needed to close the gap. While policies like shared parental leave and 30 hours free childcare have been introduced, these initiatives haven’t taken off as hoped. In fact, just over one per cent of new parents took shared parental leave in 2017-18, according to the University of Birmingham.
Portas says that sharing childcare responsibilities more equally between men and women will be key to closing the gap.
This in turn is about changing social attitudes, particularly the stigma around stay-at-home fatherhood. For it to become more normalised, organisations should do more to encourage men to take up shared parental leave.
There are also calls to scrap the auto-enrolment threshold. Speaking to City A.M., Jonathan Bland from Pension Geeks suggested that the minimum earnings level before you can pay into a workplace pension should be removed, so that workers can pay into their pensions from the first £1 they earn.
“Both men and women tend to be on similar pay in their twenties and early thirties, but the gender pay gap widens after this age when women tend to have children, or reduce their hours or work part-time,” he says. “So if we can encourage women to save more at the start of their careers, it will alleviate this problem to some extent.”
Meanwhile, Now Pensions has suggested that, for those women who take time out of work, the government make up for the lack of employer contributions by topping up their pension pots. At National Living Wage level, this top-up would boost women’s pension outcomes by 20 per cent and close around half of the pension wealth gap.
Childcare is clearly the crux of this issue. It’s a cost that has been rising above wage growth and inflation, increasing by a staggering seven per cent between 2017 and 2018. Figures from Royal London highlighted that a full-time nursery place for a child under two typically costs £1,065 a month, while the average monthly mortgage repayment is £1,040.
Women who live in the country’s most expensive areas for childcare are significantly less likely to return to work part-time after maternity leave than women who live in areas where it is cheaper, according to research from Coram Family and Childcare.
With this in mind, giving parents access to affordable childcare would help to close the pensions gap by allowing both parents to keep working.
With women facing persistent barriers to accumulating wealth throughout their lives, closing the pension gap needs a multifaceted approach. We certainly need to move away from a system where women are financially punished for raising children.