Mothers: put your own finances first

Pensions and retirement
Views & insights

Motherhood is one of the hardest jobs, but it doesn’t come with a salary or pension. Here’s how to avoid missing out

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25 March 2022 | 4 minute read

It’s a universal truth that mothers tend to put everyone else’s needs before their own. But there’s one part of your life where it is absolutely necessary to put yourself first – and that’s your finances.

Despite being one of the hardest jobs in the world, motherhood doesn’t come with a salary – and that means it doesn’t come with a pension either. Neglecting your pension could cause problems further down the road, but there are several steps you could take now to improve your financial security in the future.

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Pensions – mind the gap

If you’re up to your eyeballs in nappies, parents’ evenings and muddy football boots, the pensions gap is probably the last thing on your mind. But the gap between men and women’s pensions is so significant that it’s well worth exploring.

The gap stems from the fact that women, on the whole, are paid less than men. According to the Office for National Statistics, full-time female employees in the UK were paid 7.9% less than their male colleagues in 20211. There’s also evidence to suggest that the pay gap between mothers and non-mothers is wider than the pay gap between men and women without children2.

Since workplace pension contributions are typically based on a percentage of your salary, the pay gap means women run the risk of a shortfall in their retirement savings. A report by WeathiHer states that by the age of 60 women’s pensions are one-third of men’s at the same age3.

Fortunately, there are several ways you can boost your pension savings as a mother or mother-to-be:

1. Make the most of workplace pension schemes

Workplace pension schemes are extremely valuable because you benefit from personal and employer pension contributions. If you’re entitled to statutory maternity pay, your employer must continue contributing to your pension for at least 39 weeks4. Some employers may contribute for a longer period than this, so make sure you find out what you’re entitled to. Employer contributions will usually be based on the salary you received before you went on maternity leave. Personal contributions will be based on your earnings during maternity leave and so these could be lower than before.

2. Keep saving during an extended break

If you take an extended break, see if there is any way of continuing your personal pension contributions. This might seem impossible if you aren’t earning a salary, but if you receive any cash gifts or inherit some money, consider saving these into a pension. Non-earners can pay up to £2,880 per year into a pension, and you’ll still benefit from 20% tax relief, meaning your contribution will be grossed up to £3,600. Saving small amounts of money into a pension could make a big difference over time, thanks to the combination of tax relief and compound investment growth. If you aren’t sure which pension is right for you, speak to a financial adviser.

3. Have an open conversation with your partner

Remember that when it comes to having a child, it takes two to tango. If you’re in a relationship, consider having an open conversation with your partner about the overall family finances. Some of the options to discuss could include shared parental leave, or your partner making a ‘third-party contribution’ on your behalf to your registered pension scheme.

4. Increase contributions when you return to work

If you decide to return to work, consider increasing your personal pension contributions to try to make up for any gaps. Under auto-enrolment, personal pension contributions are set at 5% of your qualifying earnings, although your employer may enable you to save more than this (and potentially contribute more themselves). Remember, you’ll receive tax relief at your marginal rate of income tax, so if you’re a higher earner a £100 personal contribution will only cost you £60.

5. Use tax-free childcare

Childcare costs can use up a substantial portion of your income when you return to work. Make sure you sign up to the government’s tax-free childcare scheme. For every £8 you pay in, the government adds £2. This is capped at £500 every three months for each of your children. The scheme is available for parents with ‘adjusted net income’ of less than £100,000 and whose children are 11 years-old or under5. Working parents can also claim up to 30 hours of free childcare for children who are three to four years old.

6. Seek financial advice

There are several ways to boost your pension savings, but understanding what’s right for you, and the right time to do it, isn’t always easy. A financial adviser will give you a clear picture of your current and future finances, explain how to close any gaps in your pension savings and, ultimately, help you feel confident you’re doing the right thing with your money. For smart advice from someone who is on your side, speak to one of our financial advisers today.
 

1 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2021
2 https://www.research.manchester.ac.uk/portal/files/30943466/FULL_TEXT.PDF
3 The WealthiHer Report, 2021
4 https://www.moneyhelper.org.uk/en/family-and-care/becoming-a-parent/maternity-and-paternity-leave-and-your-pension
5 https://www.gov.uk/tax-free-childcare


The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

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