Having a baby? Congratulations! Let’s talk pensions.
Yup, as if you didn’t already have a to-do list as long as your arm. Nursery colours, buggy choices, pre-natal classes, nappy types, the whole shebang.
But for International Women’s Day, I propose adding an extra item: pensions.
Just when you and your partner are up to your necks in preparing for a new born, spare a thought for your old age.
Previous post: What is a pension and why you should care
Watch out for the gender pensions gap
The theme for International Women’s Day 2020 is #EachforEqual, all about building a gender equal world. One area where women really get hammered is the gender pensions gap.
The gender pay gap means we have less money to pay into pensions. The pensions gap then widens if women stop work to have kids (and let’s face it, it normally is the mother taking extended time off).
Because while you’re stuck at home, your pension contributions typically stop.
Meanwhile if the father skips off to work (with adult conversation and uninterrupted coffee breaks), his pension contributions keep ticking along. Every month, regular as clockwork, part of his pay packet gets diverted into a pension, topped up with free money from chunky employer contributions and a dollop of tax relief.
It doesn’t take a mathematical genius to work out that if one person stops paying into a pension, they’re going to end up with a smaller pension pot than someone who continues.
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How big is the gender pensions gap?
Right now, the UK gender pension gap is as high as 54%, depending on savers’ age and location, according to research* by online pension provider PensionBee.
Pension savers in Northern Ireland had the biggest gap, with men amassing pension pots more than twice the size of women’s, while the difference hovered around 45% in the North West, East Midlands and West Midlands.
Looking across the whole of the UK, on average men have saved £23,423 towards their retirement compared to just £15,066 saved by women – that’s a gap of more than a third!
Less money going in means less money to grow – and the gap between pension pots for men and women only gets bigger with age. The PensionBee survey of almost 14,000 people highlighted a 51% gap for savers over fifty (£56,710 for men compared to £27,594), which is more than double the gap for savers under thirty (23%) and those in their thirties (22%).
Previous post: How to fight back against the gender pensions gap*
Talk to your partner about pensions
If you and your other half make a joint decision to have children, and a joint decision about who works and who stays at home, then make a joint decision about how to fund pensions for you both.
In a right-on relationship, your partner might do his share of nappy changing, night waking, cooking, cleaning and never-ending laundry.
But does he walk the walk when it comes to pensions?
Discuss whether some of the money coming in should go into your pension, not just his.
To protect your financial future, it’s important to make pensions part of your family budget.
The 1950s fantasy of a male provider bringing home the pension bacon for his little lady doesn’t always work out in reality, as my divorced mother can explain.
Now, I get that maternity leave and time off afterwards can be hard financially. If you’re used to two salaries coming in before kids, if can be tough stretching a single salary.
But do consider pensions alongside other bills. Your husband’s pension will be covered, if he’s back at work. Why should mothers miss out?
Personally, I chose not to return to my office job after maternity leave. Instead, I went freelance, working part time from home as a journalist, desperately trying to fit in research and writing around nap times, early starts and one-day-a-week childcare.
But my husband and I had an explicit discussion about ploughing my (limited) freelance earnings into a pension. It did mean tough choices and less money to spend elsewhere. For example, one summer when the kids were tiny, my husband took a week off work for a holiday at home. We visited loads of London attractions, rather than splashing out on flights and accommodation for a break abroad.
Find out how my pension saving paid off: How much will I get from my pension?
If your other half is a higher-rate taxpayer and you’re not, it might seem to make financial sense to pay into his pension instead, and benefit from higher-rate tax relief. But on International Women’s Day, consider the peace of mind from having your own pension savings in your own name – whatever the future might hold.
How to slash your gender pension gap
Here are four ways to minimise the motherhood pension penalty:
1. Before having babies, pay more into your pension
Whack in extra ‘additional voluntary contributions’, and nab any extra employer contributions and tax relief on top.
2. Sign up for Child Benefit, to protect your State Pension
Even if one parent earns over £60,000 a year, so the payments get clawed back in income tax, the stay-at-home parent needs to register for Child Benefit so they get credits towards their State Pension.
However, a family with a higher earner can always ask to stop receiving the payments and avoid the tax charge, while still benefitting from the State Pension credits. (More about stopping Child Benefit here).
3. Grab free money even if you’re not working
The good news is that even if you don’t earn enough to pay tax, you can still get up to £720 a year in tax relief, by paying up to £2,880 a year into a pension.
The issue may be finding up to £2,880 in the first place, if you’re earning zip all as a stay-at-home parent. That’s where you need to discuss diverting some of the family budget into your own pension.
4. Plough more into your pension after returning to work
Remember, all but the highest earners can pay up to 100% of earnings into a pension each year, up to a maximum of £40,000 a year.
Maxed out that £40K? You can even ‘carry forward’ unused pension allowance from the last three years, and chuck yet more into your pension. You need to have been a member of a pension scheme in those previous years, and you can’t put more into your pension in any one year than you actually earned, no matter how much unused allowance you have from previous years.
More on the pension carry forward rule
Now – over to you. Have you ever discussed pensions with your other half? Done anything to bump up your own pension? Do share in the comments, I’d love to hear!
*indicates an affiliate link, so anything you buy through it will help support the blog, as I will get a small commission at no cost to you. Many thanks!
This is a collaborative post with PensionBee. More here on gender and pensions.
PensionBee is authorised and regulated by the Financial Conduct Authority. With pensions, your capital is at risk. The value of your pension with PensionBee can go down as well as up and you may get back less than you started with.