- Five years after having a first child, women’s earnings fall an average of 42%, or £1,051 a month – compared to what they were making a year earlier.
- Over five years, women have lost an average of £65,618 in pay after having their first child, £26,317 after their second and £32,456 after their third.
- The biggest losses are in the first year, when they may take at least some parental leave. Mums miss out on £1,553 a month on average in the first year after the first birth, £965 after the second and £665 after the third.
- However, even after this leave is completed, the impact lingers. They lose between 38% and 42% of earnings between one year and five years after the birth of a first child.
The ONS has released details of the motherhood penalty: The impact of motherhood on monthly employee earnings and employment status, England: April 2014 to December 2022 – Office for National Statistics
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“The cost of motherhood is an alarming £65,618 – even before you consider the eye-watering expenses associated with a new baby. Women are far less likely to work in the five years following the birth of any children. Those who do work may take on fewer hours and might adopt flexible working, which means they run a real risk of missing out on promotions and pay rises compared to their full-time office-based counterparts. The impact is profound and far-reaching.
The gender pay gap is almost non-existent when we start our careers. In fact, because women tend to do better academically than men, they tend to be paid slightly more on average at the start. The problem is that throughout the rest of their lives, women are hit by all sorts of inequalities which leave them lagging horribly behind.
The pay gap doesn’t open at the age women typically have their first child. It starts a few years later, either when they have a second, or when they begin to work flexibly around caring responsibilities. From this point on, men start to outpace women dramatically on the pay front, as they pick up promotions and pay rises while women are juggling home and work life.
This puts women on the back foot throughout their careers. It means that often when a couple’s parents need more support later in life, women are far more likely to be in the frame to look after them, making yet more career sacrifices. Some of this is societal, and some is based on the fact that statistically women will tend to earn less than their partner at this age, so the couple will lose less income if she stops work than if he does.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“The impact of the career compromises at this stage in life doesn’t stop with pay, because it can have a huge impact on pensions too. It’s one of the main reasons why the gender pensions gap is estimated at 48%.
To be clear, this is not so much a pensions issue, more of a workplace one and is reflective of the fact that women are more likely to earn less, have career gaps and work part-time. This is shown in how the gap increases into a yawning chasm as women head into their forties. The gap is 22% for those aged 25 to 29, but widens horribly to 52% for those aged 45 to 49.
We can’t just expect women to fill the gap by piling more money into pensions, especially given they earn less. What is needed is workplace and childcare reform that enables more women to return to full time work and keep building their retirement resilience.
What can you do?
It’s incredibly difficult for women to single-handedly challenge an inequality which needs cultural and social change. However, they can make a difference to what they do with their money, and how hard it works for them.
There are steps couples can take together to enable both to pay into their pensions while children are younger. It’s important to plan as a household, so one of you doesn’t end up with all the childcare costs while the other has all the savings. Don’t divide costs ad hoc: draw up a budget and allocate things fairly.
Decide as a household which costs are paramount. This will include things like the mortgage and may also include childcare. You also need to consider whether it will include saving, investing and pensions for each of you.
Don’t assume you can’t build a pension when you’re not working. The working partner can pay up to £2,880 a year into the pension of the non-earner, which will be topped up with tax relief to £3,600, even if they don’t pay tax.
Make sure child benefit is paid into the account of the non-working partner, and that you’re claiming – even if one of you earns more than £60,000 and has to pay at least some of it back. That way the non-earning partner will get NI credits that count towards their state pension. It’s possible to apply for the benefit and elect not to take the payments.”
Investment
Sarah Coles:
“The latest HL Savings & Resilience Barometer shows there’s a striking gender investment gap, so that only 28% of single women invest – compared to 39% of single men. Within relationships the gap narrows, but remains significant, with 32% of women in couples investing and 38% of men.
This owes something to the fact that women tend to be on lower average incomes, and those who earn less tend to invest less. In couples, they share more costs so can free up more for investment. However, that’s not all that’s at play, because the gender investment gap opens far earlier than the pay gap.
The good news is that you don’t need a huge amount of extra cash in order to invest, because regular investments can make a huge difference. By drip feeding even a modest sum into the markets through a regular direct debit, it can help investors build their understanding and confidence, as well as their long-term financial resilience. And by taking advantage of a stocks and shares ISA, investors don’t have to worry about tax, no matter how much their investments take off.
