The state should contribute towards the pensions of women who stop work to care for children or relations, says a think tank.
A report by the think tank Social Market Foundation warns of the widening gap between men and women's wealth as life spans increase.
On average, women accrue smaller pension contributions than men owing to earning lower salaries and taking time out to care for children or elderly relations.
The SMF Gender equality and the 100-year life report recommends applying the 3% minimum contribution rates from auto-enrolment pensions schemes to a woman on maternity leave. This would equate to a new government contribution of £22.88 per week, or £1189.89 per year, to that woman’s pension pot.
Kathryn Petrie, SMF chief economist, says: “Rising life spans are a good thing, but if we don’t have the right policies to respond, they could amplify financial differences between men and women.
“For all the strides that we’ve made towards equality, social attitudes that push women to give up work to care for children and parents remain strong. As well as trying to give women and men more flexibility and choices, government policies should do more to help women with the financial implications of taking time out of work.”
In 2016, the Office for National Statistics estimated that a woman on maternity leave carries out weekly unpaid work with an economic value of £762.75, well above the average weekly wage.
The SMF report released this week shows that five years after graduation, men’s median wages are £3,600 higher than female graduates’. Ten years after graduation this figure rises to £8,400.
Women in their late 50s typically have around half the pension savings of men the same age.
“Taking time out of the labour market to raise children or care for relatives is one of the key causes of the pension gap. Addressing the lack of pension accumulation during this period is essential if we are to close – or even narrow – the gap in pension savings between men and women,” says the report.
Ian Browne, a pensions expert at financial services company Quilter, says that it is unlikely that the government can deliver the SMF proposal but there is scope to make the system fairer for those caring for elderly relatives.
“If you formally register as a carer for someone you can get some benefits and NI credits toward the state pension, but it is nowhere near satisfactory. When we eventually get some form of social care policy from the government, it needs to address this issue head on.
“The current system in some ways levies a ‘dementia tax’ on those who are caring for someone with the debilitating condition, and can have an enormous impact on their ability to earn and thus their ability to save for their own later life.”
The Pensions Policy Institute, a retirement research body, reported earlier this year that women in their 60s have an average of £51,100 in their private pension pots, while men have £156,500 - more than two-thirds more.
This article was first written by our sister magazine Moneywise.