• Every year women lose out on an estimated £620.2 million in their final pension funds, resulting from lower contributions during maternity leave and the cumulative interest these could have generated
• Women also lose out on an estimated £1.77 billion in earnings when on maternity leave annually
• For 57 per cent of employers the pension contributions made during maternity remain a fixed percentage of the weekly wage earned by the employee, which can be zero 
• In the UK on average women take 32 weeks maternity leave

 

New analysis from Direct Line Life Insurance¹ reveals women annually lose out on an estimated £620.2 million² in their final pension funds, resulting from lower contributions during maternity leave and the cumulative interest these could have generated by the time they retire. In addition, it is estimated women taking maternity leave each year lose out on £1.77 billion³ in earnings because of a reduction in their salary when away from work caring for their child. 

A woman having her first child at 28 (the UK average) earning the average salary of £30,607, and having another at 30, when her average salary would be estimated at £32,570,⁴ taking 32 weeks maternity leave for each child, would lose out £8,811 of salary payments and an estimated £2,995 from her pension fund if she retired at 68 years of age.  If she took a full year’s maternity leave with each child, she would lose an estimated £29,691 of salary payments and £10,092 from her retirement savings, because of reduced contributions and the loss of cumulative interest. 

Table one: Impact of maternity leave for two children on income and pension fund 

Source:  Direct Line Life Insurance 2020

For over half (57 per cent) of employers the pension contributions made during maternity remain a fixed percentage of the weekly wage earned by the employee; they do not top up contributions if wages are reduced. Just two per cent of employers would continue to pay an employees’ full salary for a full year of maternity leave.    

On average, employers pay women during maternity leave 20 weeks of full pay.  After this period, salary levels often reduce to half pay, Statutory Maternity Pay (SMP) or zero pay, which means many employers will be making minimal or no contribution towards the worker’s pension.  An employer making the minimum pension contribution of three per cent, while an employee was receiving SMP of £151.20⁵ a week, during maternity leave would contribute just £4.54 to their pension, a little more than the average price of a glass of wine⁶. 

Chloe Couper, Business Manager at Direct Line Life Insurance, commented: “Having a baby is a joyous experience for hundreds of thousands of women a year and one to be celebrated.  However, many of these working women may underestimate the financial impact of maternity leave not only on their salary, but the long-term effect on their retirement income. While not financially possible for all parents, topping up pension contributions during maternity leave can help prevent a shortfall in funds when reaching retirement. When thinking about a more secure financial future, new parents can also explore protection products such as life insurance and critical illness cover that will pay a lump sum if the worst happens, which can help provide a safety net for the family.”

On average employees take 32 weeks maternity leave before returning to work. When joining a company the average qualifying period for a worker before an employee is made eligible for company maternity pay (distinct from Statutory Maternity Pay) is just over seven months.    

Analysis reveals if a woman earning the average fulltime salary was to have three children in her 30s and take a full year’s maternity leave for each, her pension pot at retirement is estimated to be £15,085 lower than if she hadn’t had children.  She would also lose out on over £55,000 in earnings.

Table two: Impact of maternity leave by age and number of children (based on taking a full years maternity leave with each child) 

Source:  Direct Line Life Insurance 2020

     - ENDS -

 

Notes to Editors

¹   Analysis based on data sourced from the Office of National Statistics. Average age at which a woman gives birth (28.8) sourced from Birth Characteristics in England and Wales: 2017 (published 10 January 2019). Mean salary for women by age group sourced from the Annual Survey of Hours and Earnings, 2019 provisional results (published 29 October 2019) Annual salaries estimated based on the age bandings provided in the ASHE. Figures for average length of maternity based on research conducted by Pure Profile among 100 HR Directors in the UK, carried between the 16^th and 22^nd April 2020.

² Estimation based on reduced pension contributions and the impact of lost cumulative interest that could have been generated by these funds.  Calculations based on a full-time female employee taking an average 32 weeks of maternity leave, having a first baby at 28 years of age and a projected retirement age of 68. 

³ Estimated loss of pension income calculated based on the estimated loss of earnings during maternity leave (accounting for 20.4 weeks of full pay, 10.1 weeks of half pay, 8.5 weeks of Statutory Maternity Pay and 13 weeks of no pay, as calculated in the survey of 100 HR Professionals carried out by PureProfile) and subsequent loss of interest on a pension pot assuming the employee and employer pay an average of 10.1% combined (courtesy of the ONS’ Employee contribution bands by age group and pension type, published 4^th March 2020) and an average pension pot yields 3.17% per annum (estimated based on average yields for different investment types).

⁴  Age-based average salaries based on analysis of mean salaries for women by age group sourced from the Annual Survey of Hours and Earnings, 2019 provisional results (published 29 October 2019)

⁵   https://www.gov.uk/maternity-pay-leave/pay

⁶   https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/kef4

For further information please contact:

Claire Jarrett

PR Manager

Direct Line Group

Tel: 01651 832 411

Email: [email protected]

Alannah Sims

Citigate Dewe Rogerson

Tel: 0207 025 6563

Email: [email protected]  

 

Direct Line

Started in 1985, Direct Line became the first UK insurance company to use the telephone as its main channel of communication. It provides motor, home, travel, pet and life insurance cover direct to customers by phone or on-line.

Direct Line life insurance policies are underwritten by AIG, part of the American International Group UK Limited, registered office: The AIG Building, 58 Fenchurch Street, London EC3M 4AB. American International Group UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority (FRN number 781109. You can check the FCA register at www.fca.org.uk/register or call the FCA on 0800 111 6768.

Customers can find out more about Direct Line products or get a quote by calling 0800 077 8297 or visiting www.directline.com/life-cover.