Why lack of affordable childcare remains an issue for families: Sarah Coles

For people starting out in their working lives right now, the pay gap feels largely like a thing of the past. Between the ages of 22 and 29, the pay gap for full time employees is just 0.9%. It’s not completely non-existent, but it’s not spectacular either. At this stage, women make up most of those in professional occupations - at 52%. This is likely to reflect the fact they tend to do better than men academically.

However, at the age when people typically start a family, the pay gap starts to open – so age 30-39 it’s 3.9%. Then from this point onwards, men race ahead – so the gap grows to 9.1% in your 40s, and 12.5% in your 50s. It’s hard to ignore the role that having a family plays in this. The Office for National Statistics highlighted this with data on the so-called motherhood penalty.

It found that five years after having a first child, women’s earnings fall an average of 42%, or £1,051 a month – compared to what they were making a year earlier. The periods of parental leave see the biggest financial hits, but even after this leave is completed, the impact lingers. They lose between 38% and 42% of earnings between one year and five years after the birth of a first child.

It comes down to the fact that women are far less likely to work while their children are young. Those who do work may take on fewer hours and might adopt flexible working, which means they run a real risk of missing out on promotions and pay rises compared to their full-time office-based counterparts.

The lack of affordable childcare remains an issue. The expansion of free care from the government will undoubtedly make a difference in the coming years, because 30 hours of free care from the age of nine months is a huge shot in the arm. However, this doesn’t come close to covering care for a full-time worker, so compromises will still be made.

The pay gap isn’t just a short-term hit during the expensive childcare years either. It endures for life. Women are far more likely to work flexibly to account for the fact the school day is so much shorter than the working day, and the school holidays are dramatically longer than annual leave. They’re paying a huge price for the flexibility they often feel they have no choice but to build into their lives.

If you look at the jobs where pay increases with age, like managers, directors, and senior officials, the proportion of women falls with age – from 46% in their 20s to 37% in their 50s. Meanwhile, in those jobs with slower pay rises - like caring and the services sector – the proportion of women doesn’t fall as they get older.

The impact of the career compromises doesn’t stop with pay, because it can have a huge impact on pensions too. It’s one of the main reasons why the gender pensions gap is estimated at 48%.

It means nobody can afford to wait for societal change before they consider their own position. Part of any solution begins with conversations couples can have early in their career. There should be no unspoken assumption that one of you is in charge of parenting. There needs to be discussion and agreement about what both of you want, and how you can support one another.

When you have children, you also need to think about how you manage your finances fairly. This can end up being done on an ad hoc basis, so the person working fewer hours can end up saying they don’t have any cash available to save or invest for the future, or to put into a pension. If you haven’t made a plan, this is bound to be the case. It’s one reason why the latest HL Savings & Resilience Barometer shows there’s a striking gender investment gap, so that only 32% of women in couples invest, compared to 38% of men.

Instead, it’s important to plan as a household. Decide together which costs are paramount. This will include things like the mortgage and may also include childcare. You also need to consider whether it will include saving, investing and pensions for each of you.

Some couples will decide that the money will go into the pension of the higher earner, especially if they get more tax relief. They may pay more in so you can both rely on an income from that pension in retirement. This will work perfectly well for some people, but for others it can be a disaster.

The person with the pension may not be planning the same kind of retirement as their partner, so may not be putting enough aside. They may choose to invest it in a way that their partner isn’t happy with. If they split up and they’re not married, the unmarried partner has no right to the pension. Even if they’re married, the pension may not be considered in the divorce settlement, or could be traded away for other assets, leaving one of the couple with little or no pension to speak of. Even if everything goes to plan, for couples used to earning their own money, transitioning to a position where one holds the purse strings can be incredibly difficult.

It’s why, in many cases, it makes more sense for you each to build pensions of your own. Don’t assume you can’t build a pension when you’re not working. The working partner can pay up to £2,880 a year into the pension of the non-earner, which will be topped up with tax relief to £3,600, even if they don’t pay tax.

For those of us who will never live to see the day when men and women are paid equally, there’s still a chance to plan your way to better equality of earnings, savings and investments, both when you’re working and after your retirement. That way, when you reach the stage in life when you don’t need a specific reason to be annoyed on any given day, this will be one less thing to infuriate you.

Budget and pensions – good news and bad news

Last week there was much relief, with the emergence of reports that changes to tax-free cash in the Budget have been ruled out. It’s been a damaging rumour that has risked undermining long-term planning. People will be grateful that the prospect is no longer looming over them, and they can plan with more certainty.

However, on the flip side, there were more reports that ‘salary sacrifice’ for pensions could be limited to just £2,000 a year. These are a real boon for both employers and employees, because by giving up a portion of their salary for pension contributions, employees get the full value of every pound, saving both income tax and National Insurance. Employers, meanwhile, save the National Insurance that would have been payable on that slice of the salary. It means both will pay the price for any restrictions on salary sacrifice.