Most people are familiar with the concept of the Gender Pay Gap: the fact that men earn more than women for total pay. What they may not know is that this particularly affects the financial wellbeing of mothers and carers.
This project explores the retirement repercussions for Irish women who have taken a career break to raise children or care for a loved one and explains why overcoming a discomfort with discussing money is needed as Ireland rolls out an auto-enrolling pension scheme.
Like physical health, there are various tests to compare individual wellbeing against social norms. But as with health, how one feels can be more important than empirical measures.
A high income earner, for example, might be still spend more than they earn and so be stressed over credit card debt. Likewise, a financially frugal individual might live well within their means yet feel constantly anxious over money.
An exception to this rule is retirement planning.
In 2018, the Irish Competition and Consumer Protection Commission funded a large, statistically-representative study on Financial Wellbeing and Capability. A key conclusion of this study was that:
"the higher someone's income, the better their resilience for retirement."
On face-value, women seemed less resilient than men for retirement. Further investigation, including controlling for all other factors, showed the truth was not so simple as gender alone.
People on part-time or low incomes had less access to employer pension plans and less ability to contribute to a private plan. Women were twice as likely as men to be in this group.
Census data supports these results. According to the Central Statistics Office, one-third of mothers with a child under five are not in the workforce (compared to one-tenth of men with children the same age). For parents of school age children, mothers are three times more likely to be in part-time work than fathers.
Claudia Goldin, in her Nobel prize-winning research, dubs this The Motherhood Penalty.
In the video below, Irish economist, David McWilliams outlines this concept further.
Many women are conscious of this inequality but find that childcare costs, a lack of childcare during school holidays or when children are sick, or inability to work flexible hours reduces the viability of working full-time.
"Education rates are so high, labour market participate rates are so high in the early career stages. Being a stay at home parent is a tough job in itself, and is the polar opposite to a lot of the careers that women are seeking these days that involve an entirely different skill set and fulfillment outcomes. No one is choosing it lightly, I would argue that most women try everything to stay in the workforce before they eventually leave.”
- Misemoi on the Participation Rate thread, askaboutmoney.com, October 2023.
For those with a longer career break, returning to work can be a challenge. Retraining is often essential, especially when out of paid employment while parenting.
The good news is that many companies see the benefits of enticing educated and professional women back into full-time employment.
Penny Bryant researched the relationship between women's mental health and work. Below, she shares two successful examples.
So, how does a Career Break impact pensions?
To begin with, any unpaid leave (including parental leave), means missing out entirely on Employer Contributions, Employee Contributions and State Pension Contributions.
Part-time workers often miss out on contributions, too. The auto-enrol income threshold for the new compulsory Employer Pension scheme in Ireland is €20,000 (although many allow an opt-in for those earning less).
For those able to contribute, whether through a workplace scheme or a private pension scheme (PRSA), contributions are often minimal.
The net result is a gender pension gap of 35%. That is, women have 65% of the value of a man's pension. Paul, from Ask Paul, notes this amounts to around €8,000 per year.
Money Coach and Financial Feminist, Laura Gates-Lupton, discusses how the need to plan for retirement often hits late and hard. She advocates the development of a new identity for women: one where they are confident with money.
This year, five years since the initial Financial Wellbeing study for the CPCC, the results for women are no less alarming.
One in five Irish women intend to rely on their partner during retirement while one in ten will solely rely on the State Pension.
The State Pension is intended as a social protection against poverty in old age rather than a 'comfortable' income. It currently pays €13,800 per year. Compare this to Ireland's average wage of €47,000.
If this amount sounds difficult to live on, then spare a thought for full-time carers.
Or they may find themselves unexpectedly caring for partners.
Jean found her priorities shifted when her husband acquired a brain injury. She is now his full-time carer. They live off his State Disability Allowance. As his carer, she receives Half-rate Carer's Allowance of €118/week. If she resumed work, she would need to pay for his care and would risk losing his benefits due to household means-testing.
Jean is unsure if they will receive the State Age Pension when her husband reaches 66. She is not eligible herself, having not met the minimum threshold of 520 working weeks (10 years of PRSI contributions) in Ireland.
Like many people, she is unsure who to ask for independent advice. Money Coach, Laura Gates-Lupton, explains why.
This tallies with financial confidence research conducted by the Bank of Ireland in 2021, which noted:
"One in four (25%) consumers worry about looking foolish because they don’t understand financial matters."
Their campaign encourages Irish people to use the 'F' word (Finances) and to discuss their financial wellbeing with their bank.
Unfortunately, as their own research points out, Irish people are incredibly reluctant to talk finances. As my study shows, a bank is the last place Irish people would go to discuss their retirement planning.
Contrast this to Australians, who are happy to talk money with work colleagues, financial planners and banks (but not close friends).
Australia has a compulsory employer pension contribution scheme known as superannuation.
In 2019, the Australian gender pay gap was 19% between full-time working men and women. This carried through to a like-sized gap at retirement. But the situation was far worse for those working part-time - predominantly women. Due to their situation, the total gender pension gap expanded to 33% at retirement. (Very close to Ireland's 35%.)
However, those with low superannuation levels at retirement receive a pension from the Australian Government. This dramatically closes the retirement income gap, as shown in the pink bars opposite.
In my final interview, Penny Bryant discusses how the Australian system might be received in Ireland.
The Irish pensions industry are well aware of the Australian and New Zealand models and while many can see the advantages of this new system, there are changes they would like to see in place for Ireland to ensure certain inequities are not 'hard-baked' into the system.
This research demonstrates there is a clear need - and opportunity - for the provision of non-bank financial planning advice for women by women in Ireland. Further, the contribution to society by working mothers and carers provides a net social benefit at a cost to individuals current and future financial wellbeing that many are not aware of. By raising awareness of this issue, hopefully it can be factored in to people's retirement plans as well as be addressed at a social level.
Credits:
Photos used were sourced, edited and graphically-adapted within Canva Pro.
All displayed videos are original and were edited in Riverside and iMovie. Interviews were conducted over Riverside, Teams and Zoom. My thanks to "Jean", Penny Bryant and Laura Gates-Lupton.
Supplementary videos (button links) from Ask Paul and Moneycube YouTube channels.
Audio for the The Motherhood Penalty video is from the David McWilliams Podcast. Full podcast available from Acast.
All charts created by Karina Coldrick in Excel. Survey data from a survey conducted via Jotform. Projected pension gaps chart from figures from the Australian Government's Department of Treasury, 2020.
Article by Karina Coldrick, December 2023.