The single parent pensions black hole (and how to avoid it)

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4 August 2020

The single parent pensions black hole (and how to avoid it)

As a self-confessed pensions geek and someone who has previously had to take a career break to care for my daughter, the gender pensions gap has always been a subject close to my heart.

However, another subject very close to my heart – which gets very little attention– is the single mothers’ pension ‘black hole’.

Latest NOW: Pensions research developed in conjunction with the Pensions Policy Institute (PPI) has revealed that single mothers have a pension pot just one third the size of the average woman in the UK.

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The inequality that women face when it comes to pension saving comparative to men is huge.

By the time they reach retirement, single mothers have an average private pension pot of just £18,300, approximately a third of the average woman, who receives £51,000.

Compare that to the average private pension pot for men at £156,500, and single mothers are left with just 12% of that figure, representing an astonishing gap of £138,200.

Why are single mothers particularly vulnerable?

The financial pressures of childcare are significant for any family, but for single parents, the impact is even greater. As a result, many risk falling into a pension “black hole”, where higher levels of part-time work, lower levels of pay and greater demands on income (being the sole earner) present huge barriers to saving.

Of 1.8 million single parent households across the UK – 90% are headed up by women. This means that single mums are often faced with the impossible decision of working or caring for their children, a choice that, for many, comes with huge long-term financial consequences.

The COVID-19 pandemic only magnifies the inequalities that single parents face when it comes to increased childcare responsibilities, particularly in light of school closures earlier this year.

In a survey of single mothers carried out by NOW: Pensions in March 2020, almost 1 in 3 (29%) mothers with a child aged 14 and under said they have had to reduce their working hours because of childcare needs, compared to just 1 in 20 (5%) of fathers

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Taking time out of the workforce is the biggest contributor to the gender pensions gap.

It is disheartening to think that single women are the most at-risk of facing financial difficulty, simply because of having children.

As a full-time working mum myself, I often think about the impact that my career break has had on my pension.

Faced with daily financial tugs, such as rent, direct debits and childcare costs, it is so easy to see how pensions get missed off the “to do” list for a lot of working parents.

I was only able to return to work with the support of my parents who were able to look after my daughter. But my two year career break has cost me approximately £16,000 in lost pension income.

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During the pandemic, I’ve been fortunate enough to be able to continue to work a full-day from home (with a few email catch ups when my little one is asleep) and not have to reduce my hours.

Yes, it is a bit of a juggling act but we just about make it work.

Women without children still have significantly smaller pension pots than their male counterparts.

The gender pay gap means that women working full-time still earn almost £6,000 less than men – with an average annual income of £24,150, compared with £29,980 for men.

So what can we do about it?

Firstly - we need to get more women in

Auto enrolment is a start, but we have a long way to go. Due to eligibility criteria, specifically the £10,000 threshold, a disproportionate number of women are essentially ‘locked out’ of workplace pensions.

43% of single mothers work part time, almost three times the number of men who work part time. By working part time, and receiving lower pay, they might not meet the £10,000 trigger to be enrolled into their workplace pension.

Because of this, there are 3 million women - 300,000 are single mothers – who are missing out on workplace pension saving.

Secondly – we need to enable them to pay more in

More work needs to be done to ensure that women have an equal opportunity to work full-time and are therefore able to save for a comfortable retirement.

Women are often in lower paid occupations or need to reduce their hours for childcare responsibilities. If we can support single mothers to work full-time flexibly without reducing their pay, we can help to bridge the income gap.

The COVID-19 pandemic has proved that there’s more opportunity for people to work flexibly from home and this will benefit all working parents – allowing more people to save more effectively for later life.

How can we avoid the single mother’s pensions blackhole?

The gender pay gap and gender pension gap are significant hurdles for women trying to save for their futures.

It’s time that we push for some serious policy changes to address these inequalities.

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If the government were to remove the £10,000 earnings threshold and auto enrolment were to start from £1 of earnings, this would bring an additional 3 million women, of which 300,000 are single mothers, into workplace pension saving.

Flexible working policies that could reduce levels of part-time working and help single mothers to overcome issues of career progression and low pay in the workplace are also paramount to avoid this pensions blackhole.

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Read NOW: Pensions press release here

Latest coverage from our press release

Daily Express

This is Money

Mail Online

Pensions Age

Evening Express

Evening Telegraph

The coronavirus pandemic is compounding already challenging gender issues on both a personal and professional level.

Samantha Gould, NOW: Pensions