Govt urged to give new mothers £2k pension top-up

The government is being urged to give new mothers a £2,000 pension top-up to address the pension gender gap.

The call from Which? follows analysis by itself and the Pensions Policy Institute, which found that women who take time out of work to care for a while, are hit with a ‘motherhood pension penalty’, potentially saving £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.

Even those woman who do not take a career break are still at a disadvantage when compared to men, who save around £114,000 during their career, around 27 per cent more than a woman. However, this gap widens to 40 per cent when compared to the millions of women who take time off for childcare responsibilities.

Therefore, Which? is calling for new mothers to receive a £2,000 ‘new parent’ cash injection, which with investment growth, will help address this pension gender gap.

Last year, analysis by the consumer champion also found significant disparities persist within state pension benefits – with the average man receiving £153.86 a week and the average woman receiving £125.98 a week, amounting to almost £29,000 more over the course of a 20-year long retirement.

This disparity exists despite national insurance credits that ensure those with caring responsibilities can still be eligible for state pension benefits. 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, Which? argued.

Under the proposals, each household would be able to choose which parent or guardian’s pension scheme the contribution is made to. In the event no scheme is nominated, the contribution would be made to an account with the National Employment Savings Trust, the auto-enrolment pension scheme set up by the government.

While the ‘new parent’ contribution will go some way to address the pension gender gap, Which? believes further reform to the workplace pension scheme is needed to ensure savers have an adequate income in retirement.

The introduction of automatic enrolment in 2012 has drawn in more than 10 million new savers, yet Which? research shows the current minimum saving rate – 8 per cent of income – is too low to provide an adequate income for many earners. With the current minimum contribution, a middle-income earner might expect to save £114,000, but combined with their state pension this might only provide a pension income of £13,500 a year – which would not be enough for a comfortable retirement.

The Department for Work and Pensions has also predicted more than a third (38 per cent) are not saving enough towards their pension despite the introduction of auto-enrolment.
Which? is recommending the government raise the minimum pension contribution from 8 per cent to at least 12 per cent to boost savings for middle-income earners. The average earner saving 12 per cent towards retirement could boost their pension pot by £50,000.

However, Which? proposes the default 8 per cent contribution remains for lower income earners to avoid over-saving and financial hardship, while others can choose to opt-down to this lower rate.

The People’s Pension director of policy Gregg McClymont noted that this report highlights the “need to ensure that people are saving enough to live comfortably”.

“The report rightly recognises the potential negative impact the gender pay gap has on women’s pensions and how tightly this issue is tied to motherhood. While many women choose to reduce their working hours or leave their job because they want to spend more time with their kids, the cost and availability of childcare is a key factor for some. If we’re going to tackle pensions inequality, not only are changes to auto-enrolment required but better provision of affordable childcare is also a must to enable those mums that want to keep working or work more hours, to be able to”

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