What does starting a family mean for your employee's financial future?

When a couple start thinking about having a baby, or expanding their family, they'll usually have conversations about coping with the expense of maternity leave and childcare.  Most couples don't think as far as into the future to consider what stopping work or reducing their working hours can mean for the level of pension savings they'll have at retirement.

The financial repercussions tend to affect more women than men. According to the Office for National Statistics, only three quarters of mothers with dependent children are in employment. The good news is that this has been steadily increasing but the percentage of mothers in work it is still a lot less than the 92.1% of dependent fathers in work. This is one of the reasons that contributes to the gender pension gap. But employers can help.

The work-life balancing act

Our recent research Tackling the gender pension and wealth gap found that both men and women face challenges when they return to work, but 63% of women said that working part time was the only option after having children compared to 40% of men. 62% of women had considered leaving work or had left work because of childcare responsibilities. It might make financial sense for women to return to work part-time if their partner earns more. But even when heterosexual couples earned the same amount, 66% of women felt that working part-time was the only option, compared with 43% of men.

It's helpful to look at an example to see the affect taking time out of work, or reducing working hours can have on pension savings at retirement. Let's consider a 22-year-old woman on a starting salary of £24,000 with a total of 10% going into her workplace defined contribution pension scheme and 2.5% annual salary increase. If she worked until age 67 she could have, based on 5% growth after charges, £585,080 in her pension pot. But if she had a baby and stopped working for 12 years at age 30 then she'd have £401,654 - £183,426 less. If she decided to work part-time then her pension savings could be £493,367, which is £91,713 less than if working full time.

What can employers do to help?

As an employer, highlighting policies and procedures is important but it's also useful to demonstrate that you're an employer who supports families. More and more couples are choosing to reduce hours or perhaps work compressed hours so they can both spend valuable time at home with their children rather than just one person. If this is demonstrated from management level then it can be very powerful and encourage others to think about it as a realistic option.

Flexible working also means that both people in a couple can share pickups and drop offs from childcare. And that can help to retain employees who might be struggling with the demands of family life, while working.

If someone does reduce their hours, then explaining that this will have an effect on their pension savings and their quality of life in retirement is important. This could mean highlighting that if their salary reduces, then the amount going into their pension also reduces. If they can afford to, then increasing the percentage paid into the pension scheme, to ensure the monetary amount they're contributing doesn't drop too much, can be a good idea. Reminding employees about this when pay rises are being awarded can work well.

The importance of making informed decisions

For many women, working part time or stopping work gives them the chance to spend valuable time with their children and it's something they really want to do. But understanding the potential effect such decisions could have on their quality of life in retirement means they can plan ahead, and hopefully avoid being faced with low pension savings at a later stage in their working life, when it might be more difficult to make changes.

It's key that we help women make informed decisions today, to ensure those decisions are not only the right thing for them and their family today, but also for their future.

Read the full report Tackling the gender pension and wealth gap.