Lump sum for mum – Which? calls on government to address ‘motherhood pension penalty’

New mothers should be given a £2,000 pension top-up to address the gender gap as part of reforms to the workplace pension, according to a new report from Which?.

Which? analysis, conducted with the Pensions Policy Institute, found women who take time off to care for a child, would be 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.

Which? found the average male worker might save £114,000 during their career – around 27 per cent more than their female counterpart. This gap increases to 40 per cent compared to the millions of women who take time off for childcare responsibilities, further widening the existing gender pension gap between men and women.

The consumer champion is calling for new mums to receive a £2,000 ‘New Parent’ cash injection, which with investment growth, will help address this pension gender gap.

Last year, Which? analysis 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.

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 NEST, 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 – eight 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%) are not saving enough towards their pension despite the introduction of auto-enrolment.

Which? is recommending the government raise the minimum pension contribution from eight 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 eight 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.

Jenny Ross, Which? Money Editor, said:

“Since its introduction, automatic enrolment has successfully drawn in millions of new savers to workplace pensions, but ‘the motherhood penalty’, which already impacts women’s income, threatens to leave those who choose to work reduced hours due to childcare responsibilities significantly worse off in retirement.

“If the government is committed to pension equality it should introduce a £2,000 pension contribution for first-time mothers, and also raise the minimum contribution rate for all middle-income earners to ensure they can retire with an adequate pension pot.”

Notes to editor

  • Figures on average pension pot size based on Which? analysis conducted by the Pension Policy Institute.
  • Figures for median male pension size based on an individual earning on average £30,200 a year, who saves at the minimum auto-enrolment contribution rates for 46 years.
  • Figures for median female pension size based on an individual earning on average £23,400 a year, who saves at the minimum auto-enrolment contribution rates for 46 years.
  • Which?’s recommendations are part of a new report ‘Top up the Pots: Achieving adequate retirement incomes with automatic enrolment’. Available here:
  • The Pension Commission defines an “adequate” pension pot as two-thirds of pre-retirement income for a median earner.
  • The statistic of 38% of working-age population undersaving is taken from Automatic Enrolment Review 2017: Maintaining the Momentum (Department for Work and Pensions, 2017).
  • Which? Analysis of data from the DWP up to August 2017 revealed men received almost £29,000 more in state pension income over a 20-year retirement. Press release available here:

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