- Data published by the ONS explores trends among working parents
- Most popular arrangement is now both parents working full-time
- Until 2020 the most common arrangement with two working parents was for a man to work full-time and partner part-time
- 50.4% of working families have both parents employed full-time; 44.1% man employed full-time and their partner part-time; 2.6% both partners were employed part-time; 3% woman worked full-time and partner part-time
- Working patterns can influence finances for couples, including the gender pensions gap
- Two year-long breaks and returning to work 3 days a week until youngest child is in school results in a £60,000 shortfall in pension pot at retirement
Laura Suter, head of personal finance at AJ Bell, comments:
“The shift to more women returning to work is a big step in helping to solve the gender investment gap – and in particular the gender pension gap. On average, men have more in savings, investments and their pension than women. This is due to a multitude of factors, including the gender pay gap and approach to risk in investment, but a large part of it is due to women taking career breaks and then returning to work part-time.
“The figures show that women with children under the age of 8 are still more likely to work part-time than full time, it’s only as children get older that full-time working becomes more prevalent. On top of that, in only 3% of families where both parents work are both partners working part-time, while in another 3% the mother works full-time while the father is part-time. This shows that while working behaviours are changing, it’s still overwhelmingly women who cut back on work after having kids, rather than men.
“It’s also the case that as couples have more children, women are more likely to cut back their hours and work part time. This is likely a reflection of the insanely high childcare costs in the UK, meaning it’s unaffordable for women to return to work full time once they have multiple children. For example, in families with one child 58% have both parents working full time and 38% have the father full time and mother part-time. But in families with three or more children the rate where both work full time drops to 40%, while 55% have the mother working part time.
“Part-time working has a double whammy impact, whereby women have less disposable income to save, but also have a lower income for pension purposes, meaning they are making lower contributions. This is particularly important because many women take these career breaks in their 30s, when contributions to their pension are most effective because they then have three decades to grow and benefit from compound interest.
“For example, a woman who takes two separate year-long breaks out of her career to have children and then returns to work three days a week until their youngest is school age will end up with £60,000 less in their pension when they come to retire, than if they had taken no career breaks and continued to work full time*. Someone who takes those same two year-long breaks and then works three days a week for the rest of their career will end up with a pension pot £158,000 smaller.
“Even if the woman returns to work four days a week it has a big impact on their ultimate pension pot. Someone taking two year-long breaks and then working four days a week until the youngest is in school will be £44,000 worse off in their pension. And someone who takes those same two year-long breaks and works four days a week for the rest of their career will find themselves £92,000 poorer when they come to retire.”
How to fix the gap:
- Don’t automatically cancel your pension contributions:
“Many people who near maternity leave will be able to change their pension contributions or cancel them altogether, as it will be deemed a ‘lifestyle event’ for most schemes. It’s understandable that it seems like any easy money-saving move when your finances are going to be pinched, but don’t automatically assume it’s best to make the cut, as the effects can quickly ramp up and last a long time.”
- Get ahead on a career break:
“Anyone who plans to take a career break in future to have children could increase their pension contributions in the lead-up to it, so they are bolstering the pot before they have a few lean years. This is a good tactic if you have spare money now but know your finances will be tight when you go on maternity leave or have young children.”
- Increase your contributions:
“If you return to work part-time you could increase your percentage contribution to your pension so that you’re putting in the same amount in pounds and pence as you were when you worked full-time. It will involve some head-scratching maths but your HR department should be able to help.”
- Super-size your pension later in life:
“Lots of women might already have school-age, or older, children and find their pension pot has suffered from cutting back on work. But if you’re back in full-time work you could maximise your pension contributions now ahead of retirement. It will mean putting in some meaty contributions, as your money will have less time to grow before retirement, but if your children are less expensive (or even financially independent) you might have the income to spare.”
*Calculations assume 5% pension contribution from employee, plus 5% from employer, plus tax relief, starting at age 22 on the average salary for that age, increasing by 2% a year, and based on a 4% return each year. Part-time work refers to working three days a week.
