I read with interest the June 2019 report that consumer association Which? published in collaboration with the Pension Policy Institute (PPI) entitled Top up the pots: Achieving adequate retirement incomes with automatic-enrolment.
The reports looks at a variety of different areas, with one suggestion in particular that the state should award new mothers a £2,000 lump sum pension contribution as a means of reducing the gender pension gap, itself found to be up to 40% in the research.
The question I have is: will this be sufficient?
Modelling aside, there are a number of key areas to consider.
First, there is a clear potential disincentive to shared parental leave and shared early years childcare responsibilities if this is reported, accurately or otherwise, as a ‘motherhood’ benefit. That may well be addressed to some extent by the proposal to allow another parent or guardian to receive the extra contribution, but the messaging around this would need to be carefully managed.
Second, in the long-term, the gender pensions gap is best addressed by achieving a sharing of work and caring responsibilities between genders on average across the workforce and, therefore, also of pay and pensions. The research shows that our society is clearly some way off that. It is therefore also necessary for both government and employer policies to promote this as an objective.
Furthermore, if the state had £2,000 available for new families, are pension contributions the best use of that money, costed at £560m per year in the report?
Looked at another way: would it be enough? The proposal is based on the number of women who do not work, or work fewer hours, during pre-school years only. Also, why is it applicable only for a first child?
Finally, it is important to note that the gender pensions gap is also linked to other factors. It is not just in relation to part-working time during pre-school years, which is the aspect the £2,000 proposal is designed to cover. It is also linked to career progression for women and the disproportionate distribution of other caring responsibilities, such as for elderly parents. Who mostly takes the usually unpaid and non-pensionable family leave to cover, for example, the school summer holidays?
Given that a pension is accrued over a lifetime of working, changes will take a long time to work through the system.
The new state pension arrangements allow carers to earn credits towards their pension, and shared parental leave has been introduced. Employers and pension providers, meanwhile, can do more to help reduce the gender pensions gap, such as offering guidance to returning workers about the possibility of topping up missed pension contributions on return from family leave.
Alice Honeywill is a partner in the pensions team at independent UK law firm Burges Salmon