Why unpaid parental leave means women are losing pension cash
Nearly one in three women acknowledge that a career break to have children has affected their pension savings, according to research by Cushon.
Parental leave is good, but it’s inadvertently widening the gender pension gap. But what can employers do? Is it just about continuing paying pension contributions?
There’s an important distinction between parental leave and other forms of family leave such as maternity, paternity or shared parental leave.
The law is clear on these three statutory benefits – basically when someone is still being paid, the employer has to continue paying pension contributions so long as the employee maintains theirs. If salary sacrifice is in place, contractually the employer is on the hook for all contributions unless the employee’s earnings fall below the National Minimum Wage, which means they have to be taken out of salary sacrifice.
But parental leave is different – the law states it as an entitlement to 18 weeks unpaid leave per parent per child up to their 18th birthday. As unpaid leave, terms and conditions of employment are maintained, but there is no statutory requirement for pension contributions to continue.
But surely that’s fair enough? No pay, no pension?
At a disadvantage
At face value it sounds fair. But women are more likely than men to take parental leave and this has a massive impact on their pension pot. Institute for Fiscal Studies statistics suggest that by the time their first child is 20, women have on average been in paid employment for three years less than men and have spent 10 years less in full-time paid employment.
The potential problem is, that without any statutory requirement to do so, the employer could risk having to treat all unpaid leave as pensionable if it pays pension contributions during unpaid parental leave. But there’s a question of fairness and perhaps even discrimination if the focus is just on one particular form of unpaid leave.
Primarily at least, the onus is on the government to focus on closing the gender pensions gap and that’s about guaranteeing women’s pension rights when they have children.
And it’s not just about when women take time out of employment. Many women change to part time hours to balance work with childcare and, due to the current auto-enrolment regulations that exclude many part time workers, this can also result in non-pensionable employment.
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Government review is needed
The government needs to review the earnings trigger to ensure more workers are automatically enrolled into workplace pensions. Although lower earners have the right to join an employer’s workplace pension, the success of auto-enrolment and the low opt-out rates of 8-11% indicate that lower-earning employees need to be auto-enrolled too.
And women are much more likely to be lower earners due to part time working and multiple jobs. So, a review of this trigger system can only benefit women in the long term.
Part of the answer lies in education and communication. Employers and providers need to enable women to save more while they’re able, to make up for the times that they could be losing out. And perhaps encouraging partners to pay into a woman’s pension when they’re not working due to childcare responsibilities.
The other part of the answer is about reducing the need for women to take unpaid leave in the first place. And that’s about more affordable childcare options and employers offering more flexible working options that allow women to stay working and building up a decent pension pot.
In partnership with Cushon
Cushon is an online savings&investments platform provider, offering holistic workplace savings.