The hidden cost of caregiving and its impact on pension savings for women
Across the UK, millions of workers juggle paid employment and unpaid caregiving, a balancing act that has a profound, often overlooked, effect on long-term financial security, particularly when it comes to pension savings.
For HR directors tasked with supporting employees, understanding this dynamic is critical to fostering more inclusive and equitable workplaces.
The pension gap: a gendered issue
Women in the UK retire with an average of 35% less in their pension pots than men - a disparity primarily driven by caregiving responsibilities, according to PensionBee.
The Phoenix Group, another leading pension provider, confirms that women’s pension wealth by retirement is, on average, £100,000 lower than men’s.
This gap has less to do with pay inequity (though that remains an issue) and more to do with underemployment and career breaks for caregiving.
About six out of ten (58%) of the country’s 6.5 million unpaid caregivers are female, according to a survey by Carers UK.
For many women, this caregiving role involves reducing their hours at work or exiting the workforce altogether - both of which hinder their ability to contribute consistently to their pensions.
One in four women say they don’t have enough income to contribute to a pension, according to data from the Phoenix Group.
The implications of this are far-reaching: not only are women more likely to rely on state pensions in retirement, which are significantly lower than private pensions, but they are also more vulnerable to financial instability in old age.
The compounding loss
What makes this issue particularly damaging is the cumulative effect of lost pension contributions over time.
A consistent pension contribution over decades allows employees to benefit from the power of compounding - the exponential growth of investments.
However, any gap or reduction in contributions has a long-term ripple effect.
A woman who takes a five-year career break to care for a child or an adult dependent could lose out on as much as £50,000 in pension savings due to missed contributions and the lost potential for investment growth, according to PensionBee estimates.
This is a consequence of time, not just missed payments. The more years someone contributes steadily, the more they stand to benefit from compound interest.
Sean Phillips, strategic partnerships director at ilumiti, says that while state pension gaps have narrowed, private pension disparities remain significant, affecting women more as private pensions make up a substantial part of retirement income.
“Employers have a unique opportunity to directly impact these disparities by prioritising benefits that recognize the unseen costs of caregiving,” he says.
“Supporting employees through flexible policies, financial education, and contribution matching during breaks allows businesses to play a proactive role in closing these gaps, ultimately benefiting the workforce’s long-term stability and wellbeing.”
The importance of policy and support
Employers can take proactive steps to mitigate the long-term financial penalties faced by caregivers.
Flexible working policies, for example, can help employees manage caregiving responsibilities without dropping out of the workforce entirely.
Paid caregiver leave, pension contribution matching during career breaks, and providing financial literacy programs can also make a meaningful difference.
Antonio Ribeiro, CEO of Yurtle says caregivers deserve more than just signposting to helpful resources.
Phillips adds: “With solutions like Yurtle, companies can offer targeted support for caregivers, mitigating lost contributions and helping create more inclusive, equitable outcomes that align with broader DE&I goals. This is particularly relevant as women in caregiving roles tend to contribute a higher percentage of their income into pensions but often lack the career consistency needed for compounding benefits."
These initiatives, he says, must be implemented on a wider scale to effectively address the inequalities created by caregiving.
Employers can be a key agent for change in this pressing social challenge.
Building an inclusive future
For HR directors, building a truly inclusive benefits package means acknowledging the unseen costs of caregiving.
Women already face significant hurdles in the workplace and, without support, these hurdles follow them into retirement.
By understanding the long-term impacts of caregiving on pension savings, companies can take proactive measures to reduce gender disparities in retirement outcomes.
Empowering women to remain in the workforce with adequate benefits and pension provisions means a stronger, more financially secure workforce overall.
As we rethink employee benefits, tackling the caregiving-pension gap should be a top priority.
By addressing this underappreciated issue, HR leaders have a real opportunity to not only support caregivers but also drive more equitable pension outcomes for all employees.
In partnership with Yurtle
Yurtle is an insurance-based employee wellness benefit helping companies to combat caregiver burnout (and the associated productivity and employee turnover losses) in the workplace.
