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Why women face pension poverty

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Fawcett Society, Scottish Widows, pension poverty, childcare costs Pensions contributions cut to cover childcare costs or because of time out of work to look after children.

Women in their twenties and thirties are under-saving for their pensions and may be at risk of poverty in retirement because they put their own needs last and take full responsibility for childcare costs, says new research launched recently.

The reaserch, published by the Fawcett Society as a paper called ‘Closing the Pensions Gap: Understanding Women’s Attitudes to Pensions Saving’ examined why women save less than men.

The study was carried out in conjunction with Dr Liam Foster and Martin Heneghan from the University of Sheffield and supported by Scottish Widows.

It found that while most women interviewed believed they should be financially independent, many had cut their own pensions contributions to cover the costs of childcare or as a result of taking time out of work to look after children.

Often these women were relying more on their partner for a secure retirement than they realised.

The Scottish Widows’ ‘Women and Pensions Report 2015’ revealed that only 52 per cent of British women are saving adequately for retirement, compared to 60 per cent of men, and even when women earn the same as men they still save less into their pensions.

And 25 per cent of 30-49 year old women are saving nothing for their retirement compared to 15 per cent of men from the same age group.

The pay gap – still at 13.9 per cent for full time workers according to the ONS – becomes a 40 per cent pensions gap in retirement, but women save less even when they earn the same amount as men.

Sam Smethers, the Fawcett Society’s chief executive, said: “The gender pay gap becomes a pensions gap in retirement.

“In particular women are taking a big hit on their pensions when they have children, but are not aware of the impact this will have on them in the long-term.

“Women are putting everyone else’s needs before their own, especially when it comes to who pays for childcare.

“Their baby becomes her childcare bill.”

The Fawcett Society’s research explored the reasons for this and found that underpinning many decisions about pensions were traditional ideas about male and female responsibilities.

Most women interviewed were unaware of the financial consequences for themselves of the impact of unequal caring responsibilities and the savings decisions they are making.

Many of those interviewed sought pensions advice from men (e.g. fathers or partners) or defer to them when it comes to decision-making about pensions. They display a lack of confidence, which is undermining their financial independence and decision-making.

The report suggests that gendered assumptions about maths at school, and girls and women put off by a ‘masculine’ financial environment is partly to blame.

Student debt and the costs of a family were found to be key barriers to saving for these women.

Automatic-enrolment (AE) is a welcome way to simplify starting a pension but, says the report, AE payments will not be enough to ensure sufficient income in later life.

Smethers continued: “We need to make sure couples are aware of the impact of one partner cutting their pensions contributions to pay for childcare and encourage them to share these costs more equally, including encouraging fathers to contribute to their partner’s pensions if they are taking time out of work to care.

“We can do more to support women to increase their contributions as well.

“One solution we are proposing that student loan repayments or childcare voucher payments could default to pension payments once they are no longer needed.

“This study focused on an under-explored area of research; the reasons for lower savings rates, which cannot be explained by lower earnings.

“It looked at a range of areas, including women’s attitudes to pension saving, how much they think they know about it, whether they prioritise saving into a pension over other forms of saving, whether they believe that they have different financial roles and responsibilities to men, and who they rely on for advice.”

The Fawcett Society is calling for a number of key interventions to ensure that women save more during time off to care.

Student debt and costs of childcare prevent women saving – loan repayments and childcare voucher schemes could be converted by default into pensions contributions once they are no longer needed.

Employers and the pensions industry should send targeted information to those going on maternity, paternity or shared parental leave explaining the impact of reducing pension contributions. Small employers should receive additional help from government to do this.

The partner who stays in work (usually a man) should top up their partner’s pension contribution if they take time off to care.

This is not about making women dependent but about ensuring the true cost of having a family is shared between the couple and does not fall primarily on the main carer, who is usually a woman.

Childcare should be seen as a joint cost so that it doesn’t just come from the mother’s salary.

A woman should not be the only partner reducing or ceasing their pension payments because childcare costs make them unaffordable.

And a carer’s credit for private pensions through auto-enrolment is needed to ensure women who take time off to care don’t find themselves in poverty in later life.

Jackie Leiper, retirement expert at Scottish Widows, said:  “The findings of the [Fawcett] report echo those of our own, showing a clear shortfall developing when it comes to retirement savings between men and women in their 30s.

“Despite similar levels of engagement between men and women in their 20s, this begins to drop at an alarming rate over the following decade.

“While not all changes in circumstance can be planned for, it shouldn’t mean the end of financial independence.

“Together, the industry, government and employers need to do more to ensure families and women in particular remain engaged with the need to prepare for the future to avoid jeopardising their financial security.

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