Fixing shared parental leave policy can curve gender pensions gap

It is International Women’s Day, which means we will hear about the gender pay, investment and pensions gap and say something needs to be done about it; then move on again until next year.

Sorry to sound glib and jaded, but the say/do gap is irksome, particularly when there is a clear solution staring us in the face.

I will come on to what that is shortly, but for now I will revert to a recent Work and Pensions Committee hearing in which four men were asked what could be done about the gender pensions gap.

They alighted on the removal of the threshold for automatic enrolment so that more lower earners could be brought into the system, because women are more highly represented among lower earners.

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Perhaps a woman on the panel of respondents might have pointed out here that the problem is not the auto-enrolment threshold, but the fact that more women are lower earners.

Why is this the case? It comes down to the view of women’s role as mothers and carers.

What we are really dealing with is not a gender gap but a mothers’ pay and pensions gap, and if women who are not mothers are also paid less, it is because of a generalised expectation that all women will become mothers, as well as a belief that women are, or will, become carers at some point.

These beliefs are baked into the system. Whether it is kids or ageing parents, caring is viewed as women’s work.

And coldly, from an employer’s point of view, you do not want to invest too much in a horse that is going to pull out of the race — and potentially not come back to it, or maybe not come back to it fully. 

That logic is flawed too. We know many mothers come back stronger, but it is not defending women’s astonishing ability to work hard and raise families that I want to exalt.

Shared parental leave needs improvement

There is one measure that will fix the mothers’ pay and pensions gap and remove the need for more sticking plaster measures, like scrapping auto-enrolment thresholds (although this should be done, too).

Back in 2015, Nick Clegg, then deputy prime minister, introduced a statutory right to shared parental leave for mothers and fathers.

Great idea, but incomplete. The problem with it is that women are generally paid far more in enhanced maternity pay by their employers for parental leave than men are paid in enhanced paternity pay.

This means that when couples look at their finances for that first year, they realise it makes more economic sense for the mother to take the bulk of the time off. So she does.

Crack number one in the gap has opened. She goes back but they cannot afford full-time childcare, so she goes back part time. This makes sense as dad has had a pay rise and his work is going so well.

Crack number two. She has another baby — more leave and it still makes more sense for her to take the bulk of the time off when they run the household budget numbers. She now has one foot firmly entrenched in the domestic role and one sort of hovering over the work camp, ready.

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The problem then is childcare, then who does school pick-ups later on, and because in that first year the mother took a step back, generally, the trajectory is set.

It can take years to replough that work furrow, if it happens at all, and by then years of earnings increases and pension contributions have gone. Often not recovering.

According to interactive investor pension customer data, this reality is borne out by the numbers. The pension gap forms in the 25 to 34-year-old age gap and gets wider and wider, until the value of women’s pensions are just a little over half the value of men by age 55.

Policymakers have a role to play

So, when you read about pay and pensions gaps and wonder what can be done, know that the answer lies outside the industry but inside the remit of employers and policymakers.

Some are leading. There are companies that offer mothers and fathers six months of full pay each. For companies with equal numbers of men and women, the books should remain balanced with this approach. Anything else is legacy paternalism.

I appreciate things take time to change, and even after that women may decide they want to be at home and spend more time caring. That is great and important work, but it could be for more fathers too, many of whom would love that bonding time with their kids.

The point is for couples to have a choice. Right now, most do not and it is creating structural gaps for women that we should no longer accept.

This article was written for Pensions Expert and published there on 7 March 2022.