Career breaks are leaving a lasting mark on women’s finances, according to new research from St. James’s Place, which finds that more than half of women (56%) have taken time out of paid work, compared with 38% of men.
Women are also far more likely to take extended periods away from work for childcare. Among those taking childcare-related breaks, 42% of women are out of work for more than five years, compared with just 10% of men.
However, career breaks are not confined to the years around having children. Adult caring responsibilities can also lead to lengthy periods away from paid work, with 28% of women taking an adult-care-related break for more than five years, compared with 17% of men.
The financial impact can extend beyond the earnings missed while someone is away from work. One in ten women (10%) say they paused, stopped or reduced pension contributions during a career break, while the same proportion missed out on employer contributions.
The effects continue after returning to work too. More than one in five women (21%) return part time following a career break, compared with 9% of men, while almost one in five women (19%) say taking a break left them feeling less financially secure.
Someone starting pension contributions at age 21, with combined employee and employer contributions of 8% of pay, could have a projected pension fund worth £238,632 at age 68 in today’s terms. Taking a five-year career break at age 30 could reduce that projected fund to £207,707 - a shortfall of £30,925.
Making up the difference after returning to work would require combined pension contributions to increase from 8% to around 9.72% of pay to restore the projected no-break outcome.
Women approaching retirement have half the pension wealth of men
Separate research from the Pensions Policy Institute (PPI) reveals that women aged 55-59 have approximately half (54%) the pension wealth of men of the same age.
The report highlights labour market inequalities as the primary cause of the gender pension gap. When compared to men of an equivalent age, the research outlines gendered working patterns lower the median pension wealth of women aged 55-59 by 39%, the largest negative impact identified. The analysis also shows the gender pay gap creates a further 19% reduction.
However, the study also notes the comparatively higher proportion of women working in the public sector, where more generous pension schemes are available, has a 12% positive impact to the average pension wealth of women aged 55-59, relative to men of the same age.
The report highlights that the consequences of the gender pension gap extend beyond women’s individual financial security, with significant wider societal and economic implications. These include increased pressure on the social welfare system as rates of poverty among older people rise, with women accounting for 57% of pensioners living in poverty.
The research provides new independent evidence about the gender pension gap as the Pensions Commission prepares to make recommendations to the government on the broader questions of adequacy, fairness, and sustainability within the UK pensions system.
Claire Trott, head of advice at St. James’s Place, commented: “Career breaks are a normal and often necessary part of life, whether that is to care for children, support other family members or for other personal reasons. For women in particular, our research shows these periods away from work are both more common and often longer than those of men, meaning the financial impact can build up over time.
“It is easy to think about a career break mainly in terms of the income you give up while you are away from work. But there can be other effects too, from missing your own pension contributions and those from your employer, to losing out on potential investment growth. Returning on reduced hours can then make it harder to regain that lost ground.
“It’s not always possible to anticipate a career break but, when planning ahead is an option, it can help people understand and reduce any detrimental financial impact. Simple actions like reviewing pension contributions before and after a break, making the most of employer support, or putting a realistic catch-up plan in place when circumstances allow, can make a real difference over time.”
John Adams, senior policy analyst at the PPI, said: “The gender pension gap has become a severe inequality within the pensions landscape, with women remaining at significant risk of falling into pensioner poverty. During Pensions Awareness Week, the PPI is proud to deliver new, independent evidence to support policymakers in making informed decisions about the pensions system, including the gender pension gap.”
