Self-employed women, how good is your pension?
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If there was a poster girl for understanding why women end up with smaller pensions than men, it’s me.
After having children, I had a career break. When I returned to work, for childcare reasons, I took a different role with a significantly lower salary. Then I worked part-time, with an even lower salary.
Finding myself in an unsatisfying role for which I was overqualified, I started my own business. This gave me back a sense of purpose, but took away access to an employer pension scheme with its top-up contributions.
The motherhood penalty, the flexible working sacrifice and the pitfalls of opting for a self-employed life — my pension pot has been hit by them all. How about yours, or those of the women in your life?
With women reported to be retiring on pensions one-third the size of men’s, there is much debate around how to close this gender pensions gap. Time away from work, principally to look after either young or elderly family, is the biggest cause of the disparity, and hence the focus for policymakers.
Yet a broad-reaching, progressive set of policies are needed to tackle all the challenges women continue to face in planning for retirement.
Worryingly, over a third of self-employed women are saving nothing at all into a pension. The same goes for nearly one-fifth of women working as employees, according to the Scottish Widows Women and Retirement 2019 Report.
Forget the gender pensions gap — this is a pensions black hole.
It is incredible how many women I know who, like me, have traded a return to their corporate careers for building a business on their terms. Yet they are not contributing to pensions.
Being your own boss means being proactive about retirement planning. The self-employed aren’t auto-enrolled into a pension scheme so have to make an intentional decision either to continue paying into a previous employer’s scheme (if allowed), or open a private pension.
How can the next government help everyone to contribute to a pension with ease, regardless of how they earn a living?
The huge benefit of company pensions is the employer contributions. The self-employed have nothing similar. Without this “free money”, there will always be divergence between the pensions of the self-employed and the employed.
Yet even if there is no top-up, there needs to be provision for default access to pension savings for the self-employed to make it as simple as possible for people to start saving.
I am minded to make up for the penalties I have faced. Pension contributions are now my monthly priority. I took stock of my various employer pension pots, consolidated a couple into a private pension with PensionBee, an online service which enables people to pool their pensions, and set up a monthly direct debit to buy into a multi-asset fund.
I still get the advantages of tax relief on my pensions contributions, but the biggest downside is the lack of flexibility. Anyone running their own business knows how difficult it is to manage cash flow and chase down payments. I can stop regular contributions if I need to, which is essential when you don't have the security of a consistent pay cheque each month. The money will be locked up until I am at least 55 though.
Between the pension, a stocks and shares Lifetime Isa and regular Isa contributions, I am putting away close to 40 per cent of my monthly income. It sounds a lot but it's needed to achieve the income I want in the future.
Could a more flexible pensions model encourage business owners to make regular pensions savings? It seems highly ironic that they pay into pensions for staff, via auto enrolment, yet often cannot afford confidently to fund their own.
No wonder that research by Scottish Widows found that the proportion of self-employed women who are saving adequately for retirement is relatively low at 46 per cent, compared with 57 per cent of women as a whole.
If we truly want to close the gender pension gap for all women, the conversation needs to be even broader.
Statistics from the Chartered Insurance Institute show that nearly two-thirds of mothers return to work part-time after the birth of a child, earning 30 per cent less per hour than women who work full time.
Saving something, however small, is better than saving nothing. Yet 75 per cent of employees who are ineligible for pensions auto-enrolment are women. Getting rid of the minimum earnings threshold to make pensions auto-enrolment — and the mandated employer contribution — accessible to part-time working women is a crucial step.
One think-tank has proposed a family carer top up for employees working part-time or taking a break because of caring responsibilities, worth up to £820 per year (the equivalent of an employer’s auto enrolment contribution at National Living Wage level).
It’s a good idea, but if initiatives like this ever become policy, they must capture self-employed workers too.
We should also consider why so many women like me are self employed in the first place.
Greater flexibility by employers can only enhance women’s prospects of going back to work. Heavily subsidised childcare would undoubtedly facilitate more mothers getting back to work sooner and potentially increase the numbers working in full-time positions.
Yet if childcare subsidisation is a topic for debate, then let’s also consider what this means for the self-employed. At the moment, childcare costs are not a deductible business expense. Just imagine how many more women would be able to set up businesses, or expand them to the next level, if this were a possibility.
Finally, greater education is crucial to raising awareness and reducing disengagement around retirement planning for both genders.
Employers have a responsibility to educate their employees on the value of continuing their pension contributions even when faced with major life events — especially time out for childcare.
Yet the self-employed also need access to guidance — perhaps we could achieve this by making the government’s free PensionsWise helpline open to younger workers, and not just to those within reaching distance of retirement.
As a money coach, I absolutely know that the messages around financial wellbeing resonate when people hear them. Talking about the changes we want to see takes us a step closer to making them happen.
At 30 years old, my pension pot was equivalent to my husband’s. Now aged 38, life events mean it is significantly lower, with the gap widening each month. I can never close that gap. However, I will continue to campaign and educate others in the hope that by the time my children are of an age where they are supporting themselves, this issue is well on the way to being fixed.
Emma Maslin is a money coach and personal finance expert who blogs at www.themoneywhisperer.co.uk Twitter: MoneyWhisperer_