Friday 8th March is International Women’s Day and this year it comes in the same week as the Chancellor’s budget speech. Rachael Griffin, tax and financial planning expert at Quilter, explores three areas where the government could make changes to tackle persistent inequalities and help boost women’s finances:
Bridging the gender pension gap
“Closing the gender pay gap suffered by working women must remain a priority for the government. It’s also crucial it acknowledges the knock-on effects that unequal employment opportunities have on women’s ability to save towards a pension. Perhaps surprisingly, the gender wealth gap is negligible for young adults, highlighting the strides made towards gender equality in recent years. However, as men and women increase in age, the gender wealth gap grows significantly, soaring to 42% by the age of 65, and there is a 92% difference in private pension wealth between men and women.
“The reasons for this disparity should be well known by now; disproportionate caring responsibilities often push women into low-paid and precarious work. According to the ONS, the employment gap is widest between the ages of 35-49, when women are significantly more likely to leave the workforce or reduce their hours to look after dependent children. This massively restricts women’s capacity to accumulate pension wealth in comparison to their male counterparts – women face working for an extra 19 years to retire with the same pension as men according to the Pensions Policy Institute.
“What’s more, due to uneven employment patterns, women are less likely to meet the threshold for auto-enrolment. This causes low-paid workers, the majority of whom are women, to trade off money they need today for their future pension security. This is an inherently unfair situation. Instead of encouraging people to gamble on their future financial security, the government should direct its attention towards providing accessible and affordable childcare as well as improving the social care system to help lessen the economic burden on women.
“Women should also be encouraged to seek professional financial advice where possible to ensure they make the best possible choices for their financial futures, and to make use of government backed support such as the Pension Wise service from MoneyHelper.”
Covering the cost of childcare
“Although improvements have been made in recent years due to changing attitudes, the responsibility for early childcare still falls disproportionately on women. According to the latest ONS figures for the UK, 84% of men with children between the ages of 0 and 4 are in full-time work, compared to just 33% of women. Of course, some parents are happy to take time off work to look after their children, but this significant gender imbalance ultimately leaves women facing the economic brunt of childcare. Women are more likely to rely on lower-paid and insecure employment, which can affect both career progression as well as pension wealth later in life. This makes it even more crucial that the government offers adequate financial support and affordable childcare options for young families.
“In last year’s spring budget, the government announced it would provide 30 hours of free childcare per week to all parents with children over the age of 9 months. Expanding publicly funded early education and childcare is a step in the right direction which should help provide financial respite for parents, particularly during the ongoing cost-of-living crisis. However, analysis from the Women’s Budget Group found a £5bn funding gap in the public childcare system, which threatens to place immense pressure on the sector and could even reduce the supply of childcare providers, having the opposite of its intended effect.
“If the government fails to fill the funding gap by 2025, childcare providers will be unable to meet increased demand, likely leading to nursery closures and staff shortages. It is crucial that the government acknowledges the financial costs that will be required to deliver on their promises and find the fiscal headroom to provide much needed support for childcare providers. Failure to tackle this problem will unfortunately perpetuate the inequalities faced by women and jeopardise their financial wellbeing further.”
Changing the child benefit system
“Flaws within the current child benefit system have left thousands with reduced pensions, disproportionately impacting women’s finances. To receive a full state pension, you need to pay or be credited with 35 years of National Insurance (NI) contributions. Before 2013, mothers automatically received NI credits when they started receiving child benefit payments. However, following the introduction of new child benefit rules in 2013, parents who did not qualify for child benefit had to fill in the child benefit claim form (CH2) or miss out on the NI credits they were entitled to. This system created an additional layer of bureaucracy for carers, most often women, and left little room for error – those who forgot to claim were only allowed to claim back three months of NI credits.
“Last year the government confirmed its plans to allow people to apply for National Insurance credits retrospectively, for more than just three months, to ensure they did not miss out on their state pension entitlement. However, it has been criticised for the length of time it is taking to implement the new rules and the complexity it has caused.
“At present, parents who have not claimed Child Benefit and missed out on NI credits can fill out the CF411A form either online or via post which offers a mechanism for HMRC to review whether you can retrospectively get NI credits further back than just three months. However, HMRC say they still may only award credits under certain conditions, such as reaching state pension age after the period in question or sharing childcare with a registered Child Benefit recipient. This issue is becoming increasingly relevant given frozen thresholds for both income tax and the High Income Child Benefit Charge (HICBC) and high wage growth due to inflation.
“The HICBC should be levied at around £65,000 now if it had gone up with inflation, and according to the Office for Budget Responsibility there will be 2.1 million more higher rate taxpayers and 350,000 additional-rate taxpayers in five years’ time. Many of these taxpayers who are also parents might not have claimed Child Benefit, mistakenly believing it would not benefit them or they’d need to go through the much maligned process of filling out a self-assessment form. This misunderstanding could lead to significant gaps in their NI record, affecting their state pension and at present while there seems to be routes to getting retrospective credits in place there is still no formalised process in place.
“It is promising to hear that the government is considering raising the HICBC threshold at the spring budget as this would provide a much-needed boost for families and provide further financial security for people with childcare responsibilities. However, it is also vital that it proactively identifies and encourages eligible individuals – most often women – to claim their credits given the significant impact it could have on their quality of life at retirement.”
