Talk Money Week is delivered by the Money & Pensions Service (MaPS) and is aimed at anyone who wants to manage their money better, or any organisation that helps people deal with money matters, either now or in the future. The aim is to empower people who may be feeling the squeeze, struggling with bills or worried about what the future may hold, to find a way forward.
MaPS defines financial wellbeing as being “about feeling secure and in control. It’s about making the most of your money from day to day, dealing with the unexpected, and being on track for a healthy financial future. In short: financially resilient, confident and empowered.”
Research shows that being an unpaid carer often leads to financial strain, which in turn affects mental health and relationships. So how might a decision to care now disproportionately affect financial wellbeing in the future?
Caring and employment
Needing to provide unpaid care can impact a person’s ability to work in full-time employment. Recently there has been widespread media coverage of this issue particularly with regard to childcare, amplified by campaigning groups such as Pregnant then Screwed, who organised the ‘March of the Mummies’ in several cities in October. The UK has the highest childcare costs relative to earnings across the OECD24. This results in parents, most often mothers, either leaving the workforce altogether or reducing their hours to minimize the time their children spend in paid childcare. The cost of living crisis has contributed to a sharp rise in the number of women leaving the labour market to care. A staggering 43,000 women have dropped out of the workforce to look after family in the last year, representing a 3% increase on the previous year. In June to August 2022, nearly 28% of women were not working because of family commitments, compared to just over 7% of men. This is particularly prevalent in lower income families who are effectively ‘priced out’ of working due to the high cost of childcare.
Perhaps less widely discussed in public debate is the number of people who feel unable to maintain full-time, or even any part-time, paid employment, due to other caring responsibilities – for an older, seriously ill, or disabled person. This is an issue which affects more people than you might think. In 2019, the Sustainable Care team worked with Carers UK to calculate the likelihood of being a carer in adult life. Analysis of longitudinal data showed that two-thirds of adults have at some point in their lives been the carer of someone who was sick, disabled, or who required support in old age. The impact is gendered: 7 in 10 women and 6 in 10 men. And women are more likely to care earlier in life than men (on average by age 46, which is eleven years earlier than men). These findings indicate that caring features particularly strongly in women’s lives and that they are likely to be caring at ages when they would expect to be in paid work.
When people decide to reduce their hours, or quit their paid jobs altogether, they may be unaware of the extent to which this can reduce their lifetime earnings and retirement security/long term financial security. Employers are now obliged to auto enrol employees into a pension. However, workplace pension schemes have a minimum income threshold of £10,000 a year. For those on low incomes, including those who have reduced working hours to care, this will mean they are not enrolled in the workplace pension scheme. This has a disproportionate impact on women, disabled people and people from many minority ethnic backgrounds.
All this is against the backdrop of a significant gender pay gap in the UK that means women working full-time earn on average 9% less than men, and women working part-time earn 30% less than their full time counterparts. 75% of all part-time workers in the UK are women. Caring responsibilities combined with the gender pay gap heighten women’s risk of poverty in later life and inadequate pension savings or income. The Women’s Budget Group says that women are “more likely to be poor” and due to lower wages and savings, are “less prepared to face the rise in the cost of living”.
Impact on savings
There are many structural causes of women’s disadvantaged financial position including being in lower paid jobs – albeit with high societal value, such as care work – and leaving work to provide care. Furthermore, MaPS found that women are significantly less financially confident and engaged than men and that along with the gender pay gap there is also a gender investment gap. YouGov research shows that 52% of women have never put their money into an investment product, compared to 37% of men. Making pension contributions early in life helps people to make full use of compound interest. This means that making small savings early on can be more important than larger savings down the line. Not being in a position to save, or even being aware of the importance of starting early has a huge impact on women’s experiences in older age.
Example 1: If a woman starts investing £50 a month at the age of 20 and does that until she is 60, she will have invested £24,000. Assuming an interest rate of 4 per cent, thanks to compound interest, she will have a pension pot of almost £60,000. However, if she does not start saving until she is 40, even if she saves double the amount, her pension pot will only be around £36,000 because it has had less time to build.
Example 2: A mother in her 40s working full time, who had children at 33, will earn 7% less on average than a woman with no children. By contrast, men with children earn 20% more than those without children.
Example 3: The average pension pot of a 65-year-old woman is £69,000. This is £136,800 less than the average man, who will have saved £205,800.
Recommendations
So what can be done? This commentary has described the significant challenges that impact on people’s financial wellbeing (particularly women), including their ability to save adequately for the future but there are actions that can be taken on an individual, organisational and government level to support change. Fundamentally though, it raises questions about what balance we should strike in the responsibility placed on individuals, employers, and the state to ensure that people have a decent standard of living in later life – with that balance shifting ever more onto individual shoulders in recent years.
For individual and households
- Seek information and guidance (see list of resources below) prior to embarking on parental leave or reducing working hours to understand the risks associated with lower pension contributions during this period.
- Initiate ‘Money Talks’ with family, friends and spouses to plan for future provision, savings and discussion pensions.
- Ask your employer about their flexible working policy to see if there are ways to balance work and care.
For employers
- Implement support and flexibility in the workplace (e.g., flexible working, work from home options). The pandemic has shown that people can work remotely and flexibly. Flexible working arrangements could go some way to helping women in particular to feel better equipped to juggle work and caring commitments. Could flexible working practices also help to close the gender gap in more senior roles in some industries?
- Develop a framework of rights and entitlements in employment, welfare, and social care systems (supporting them to make choices about providing care without putting their own health, financial wellbeing, or social support at risk)
- Explore options for carers’ leave (with financial support) in a variety of appropriate circumstances, not just emergency situations.
- Ask employees what would help them balance caring and work.
- Use the Employers for Carers website for examples of good practice from a range of employers who are implementing more ways to support employees who care.
- Consider raising employer pension contributions – the current minimum employer pension contribution through auto-enrolment is 8%. Scottish Widows suggests a combined 12% employer and employee contribution as an adequate level of saving.
For the financial industry
- Pension products require greater flexibility – for example, allowing savers penalty-free access to some of their pension savings, within limits. Many people have to balance competing demands when it comes to saving for the future – whether it is saving up a deposit for their first home, or contributing to their retirement savings, or building up a pot of emergency savings for a rainy day. This kind of flexibility in pension products would allow more women to combine flexibility with security and thus encourage pension saving (see Scottish Widows Women and Retirement Report, 2021).
For government
- Introduce pension credits for unpaid carers (as suggested by a recent Fabian Society report).
- Consider more radical solutions to enhancing financial wellbeing for all citizens, such as Universal Basic Income (UBI), which would provide a guaranteed income to everyone, without means-testing or other conditions.
- Make pension systems more inclusive of part-time workers. 32% of women who work part-time earn less than the £10,000 automatic enrolment qualifying earnings threshold, and are missing out on valuable employer contributions.
- Reduce the minimum age for auto enrolment from 22 to 18 years old. This would give some women four extra years of savings to help mitigate future periods of part-time work later in life.
- Change auto-enrolment contributions so that they are based on full salary.
- Develop a framework of rights and entitlements in employment, welfare, and social care systems (supporting them to make choices about providing care without putting their own health, financial wellbeing, or social support at risk).
Further support for financial planning and advice:
Louise is Associate Professor in Social Policy in the Department of Social Policy, Sociology and Criminology at the University of Birmingham, and Director of the Centre on Household Assets and Savings Management (CHASM). Louise’s work focuses on understanding and addressing the risks, challenges and inequalities associated with the financialisation of later life in three key policy areas: housing equity, pensions and long-term care.
Rachael is the Impact Specialist in the Centre for Care, working with academics and external partners including charities and policy makers to mobilise research findings to have the greatest impact beyond academia. Her role is to work with our researchers to plan for impact, explore the ways research findings can be widely shared and identify partnerships and possible collaborations.
Becky joined the Centre for Care in June 2022 as a Research Associate, working closely with Professor Sue Yeandle. Her role is to ensure that our research makes a difference to care policy, using our evidence to respond to parliamentary inquiries and government consultations across the four nations of the UK. This will include working closely with the team to gather evidence on critical and emerging issues in care, as well as synthesising the grey and academic literature and engaging with our partners in the care sector.
