A recent study by Workingwise indicates that over half of the women in the UK fear that they will have to work beyond their official retirement date. The stats show that middle-aged females are concerned the current pension system does not take into account career breaks unique to women. Subsequently, if left short financially at the end of their careers, women may well have to consider working long into retirement.
It seems, even in the 21st century, when we are busy congratulating ourselves on creating a society where there is absolute equality between the sexes, there is still a tendency to adhere to the old adage that the woman’s place is caring in the home. In the workplace, there is of course maternity and paternity leave, but we seem quite a long way from the situation where parents decide to share the child-rearing task absolutely equally.
While the question of equal pay between men and women still remains questionable in some commercial quarters (the Office for National Statistics study for 2021 showed that women earned 15% less than men), there is no doubt that in effect, women are often forced to work part-time for their employer (due to necessary career breaks). The Workingwise study suggests that unless women make a special effort to protect their pensions, they could lose out.
The study, which focussed on middle-aged females living in the UK, found that 53% of women were concerned their pension would not meet their retirement needs. One of the main reasons for this appears to be the fact that when in employment, women are likely to have unique career breaks: maternity leave; taking time out for child rearing; structuring their own employment around a child’s educational needs (i.e., finishing work in time for when the children will be at home etc.). The financial benefits which are currently in place can support women through the period of need but may cause issues at time of retirement.
The study showed that over 83% of women had worked part-time for over a year and nearly one third worked part-time for over a decade. Even though 75% recognised part-time work as the reason for reduced pension payments, over two thirds of those interviewed said they had actually stopped pension payments when working decreased hours.
The study highlighted other factors, including home caring responsibilities, frustrate a woman’s promotion opportunities. Thus, pay is likely to be lower and consequently pension contributions will be lower too.
Both statutory pensions and occupational pensions will be affected. If an individual is not working, they are not receiving a salary, so they are not making contributions to their occupational pension. In the same way, National Insurance (NI) contributions to the statutory pension may not be paid as they are taken out at source from a work salary.
The expectation of the arrival of a new baby in the house is an exciting time. There are going to be enormous changes in that first year, so soon-to-be parents tend to concern themselves with financing for the here and now and the year ahead. Individuals may put their own needs to one side a little. The distant future – like retirement – seems so far ahead, it becomes irrelevant.
But unless future parents take their own retirement into consideration, they may well leave themselves, and their families, wanting in years to come. So, we recommend, before going on maternity leave – make sure you are also preparing for that distant future through pension preparation.
Maternity leave does not just have to be about the woman. Now with paternity leave, both parents can take time out to share parental responsibilities in the first year.
Since 2015, both parents have the right to take 50 weeks of maternity/paternity leave. However, you do not have to take all this time. The important part is your employer has to allow you to return to your previous job (at least in the first 26 weeks of maternity leave), at the same pay and with the same conditions.
It should be noted that you only receive statutory maternity pay for 39 weeks and this, at the time of writing, was 90% of an average weekly salary for the first 6 weeks, and then £151.97 for the remaining 33 weeks. (You can continue to receive 90% of your weekly salary if it is lower than £151.97.)
The great thing about an occupational pension is your employer contributes to your pension as well. This will continue automatically during maternity leave. Generally, these contributions of 3% of your salary are calculated on your full salary. However, it would be a good idea to check with Human Resources how much you will receive in contributions.
It’s also worth checking whether your employer will pay pension contributions in the last 13 weeks. It is not mandatory and your contract will confirm what your situation is. The last 13 weeks are considered to be unpaid leave so you may well want to increase your own pension contributions during this period.
Your own pension contributions will also continue but they will be based on the money you are earning while on maternity leave. It is therefore essential to consider whether you can increase pension contributions while you are away from work.
Another option is to top up your pension following maternity leave. You are allowed to contribute up to £40,000 a year.
The world of pensions can be a complex place at the best of times and if you are looking to top up your pension or make your pension more efficient, then a registered financial adviser can be essential. They will look at your funds and help you navigate your options and find the most efficient schemes as you move forward.
You can also add to your State Pension. Check out what NI payments will be made while away from work. You can make voluntary contributions anytime up to your official retirement date.
The point here is, in order to prepare for your pension years, they need to be front of mind all the time. You can only prepare for the big changes in the here and now if you take the long-term future into account. So, by ensuring you are always looking at the performance of your pensions and getting that guiding hand from a registered financial adviser you can offset some of those pension differences you may feel you have little control over.
We are authorised and regulated by the Financial Conduct authority. This means we can help you to make the best possible decisions when it comes to your pension.