New research by pension provider Royal London has found that mothers can miss out on pension savings of nearly £92,000 by juggling childcare and working part-time until their child begins secondary school.
And in the most extreme cases there could be a shortfall of £183,000 if they leave work altogether for the same period.
Here, Which? explains why mothers are more likely to have less in their pension pot and offers advice on how you can keep your retirement on track.
The financial impact of parenthood
Many parents drop their working hours after having children to spend time with their new family and to save money on childcare costs. But Royal London has warned that in some cases this could lead to a 'pension penalty'.
This is due to several factors, including not qualifying for automatic enrolment, earning less, and missing out on National Insurance credits.
For example, you need to earn over £10,000 a year to be automatically enrolled into a workplace pension, which means not all part-time workers will qualify.
If you're in a workplace pension, although the percentage you pay won't change (employees pay a minimum of 3%, employers 5%), if you've reduced your working hours, you'll earn a lot less to contribute.
Another factor to consider is your state pension – workers earning below £12,450 don’t pay National Insurance, which means they could miss out on National Insurance Credits. These credits are used to build up qualifying years , which then determines the amount of state pension you get once you hit retirement.
Find out more:How much worse off could you be?
According to Royal London, your pension shortfall could be between £92,000 and £183,000 when you come to retire, compared to a full-time worker who doesn't take time out.
Find out more:Why are mothers more likely to have less?
Tackling the gender pension and wealth gapLeaving work or going part-time isn’t a consideration for around half of male workers, while far fewer women – only around a quarter – say the same thing.
According to the Office for National Statistics (ONS), the most common arrangement among families in the UK is for the father to work full-time, while the mother works part-time, until the youngest child is 11.
Around 92% of fathers with dependent children work, compared to just 75% of women.
Additionally, there are 1.65 million fewer women in employment in the UK than men, and twice as many female part-time workers than men.
Find out more:6 ways mothers can boost their pension
Here are our tips for keeping your pension on track.
1. Claim child benefit
If you take time out of work to raise children, you'll stop paying National Insurance Contributions (NICs) on your income, which determine your state pension entitlement.
However, if you claim child benefit and have a child under 12, you'll automatically get National Insurance credits, which will still count towards your NIC record.
If you or your partner’s adjusted net income is over £50,000 a year, you may have to pay the high-income child benefit charge. However, it's still worth applying for to benefit from National Insurance credits.
The charge will not be more than the amount you get from child benefit payments.
Find out more:2. Increase your contributions
Check to see how much you're paying into your pension, and increase contributions if you can afford it.
For example, you could increase your percentage contribution if you've recently had a pay rise, or just pay in a lump sum when you can.
Some employers match your contributions, so even a 1% increase could make a big difference to your pot in the long run.
Research from Fidelity found that a woman who increases her contributions by 1% from the age of 25 and takes a two-year career break at the age of 31, could see their pension pot rise almost £10,000 more than a woman paying the minimum 8% without a career break.
Find out more3. Plan for maternity leave
Depending on how much maternity leave you take, your income may drop and result in smaller pension contributions during this time. However, some forward planning can get around it.
First, it's a good idea to work out how much your contributions will be reduced by, then to catch them up you could increase your employee contributions before you leave, when you return, or a combination of both.
Find out more4. See if your partner can boost your savings
If you're part of a couple and one of you earns more than the other, or one is taking time out to have a baby while the other carries on working, you could decide to even up both pension pots by having the higher earner pay into the lower earner's pension.
Clare Moffat, pensions expert at Royal London added: 'The number of decisions you’re faced with when you become a parent can be overwhelming but shouldn’t just involve the length of maternity leave or dealing with childcare costs.
'Talking to your partner about money and thinking about how your financial planning decisions impact you as a couple, both now and in the future, is vital. That way you look at all options available to both people in a relationship.'
Find out more:5. Consider a lifetime Isa
If your earnings don't qualify for auto-enrolment – or you have extra money to save for retirement – you could try a lifetime Isa.
The lifetime Isa is a tax-free savings or investments account designed to help savers either buy their first home or save for retirement.
For every £4 you save, the government will add £1 up to a maximum of £1,000 every tax year – but you can only open one of these accounts if you're aged 18-39.
Find out more6. Get free pensions advice
You can get free, impartial guidance from the Money and Pensions Service.
Find out more:source https://www.which.co.uk/news/article/women-face-183000-pension-penalty-for-childcare-aULhv5Y6ZDK7