Single mums retire on tiny sums compared with other women and men

Single mums are retiring on pensions a third the size of other women’s and an eighth the size of men’s typical retirement pots, new research shows.

Before retirement, mothers bringing up children alone are more likely to hold a job than the average adult, but tend to be employed in low-paid part-time roles that fit around childcare and offer less chance to save for a comfortable old age.

They reach 65 with around £18,300 in private savings, compared with the £51,000 and £156,500 which other women and men retire on respectively, according to the study published by NOW: Pensions.

And they are also worse off than divorced women, who end up with savings of around £26,100, while divorced men have £103,500 by the time they stop work. 

But although women are still building vastly smaller private retirement pots than men, separate data for the state pension show a narrowing of the gender gap.

This has boosted women’s payments but is penalising men by a few pounds a week.

Before an overhaul in 2016, men received nearly £164 a week on average and women £136 a week, but under the new state pension men are now getting £160 and women £153 a week – see the chart below.

Single mothers face huge barriers to saving, and their situation is likely to have worsened during the economic downturn caused by the Covid-19 crisis, says NOW: Pensions.

‘The combination of higher levels of part-time work, lower levels of pay and greater demands on their income as the sole earner in their household, means that they are likely to find it difficult to save adequately for retirement.

‘The recent Covid-19 lockdown has made it even harder for single mothers to work as many have had to juggle schoolwork, chores around the home, as well as their own work, without any help from family and friends.

‘Now that we are in the school summer holidays, it is expected that many single mothers will have to further reduce their hours in order to take on the sole caring responsibilities for their children.’

NOW’s sums for pension pot size at 65 are the median, meaning midpoint, figures drawn from the Understanding Society survey which covers 40,000 households and some 4,000 retired people.

The study, funded by the Economic and Social Research Council and a consortium of government departments, was analysed by the Pensions Policy Institute thinktank on behalf of NOW: Pensions.

The research was focused on ‘under-pensioned’ groups and the underlying reasons, and did not cover how much single fathers typically save up for retirement.

It also found:

– Single mothers’ employment rate is 76 per cent, slightly above the overall average of 75 per cent

– Their average full-time income is £18,290, compared with other full-time women workers who earn £24,150, and the UK average of £27,376

– Some 22 per cent of the working population have part-time jobs, but 43 per cent of single mothers do, and 15 per cent of single fathers

– Single mothers in part-time work earn £6,922 a year on average, compared to £9,976 for women in general

– Some 23 per cent of women do not meet the £10,000 earnings threshold for being auto-enrolled into a pension, and miss out on free employer contributions to their pots

– That compares with 12 per cent of men, and 31 per cent of single mothers, who don’t qualify

NOW says that if auto enrolment were to start from £1 of earnings, this would bring an additional 1.9million women – including 300,000 single mothers – into workplace pensions.

Gender gap in state pensions has narrowed 

Narrowing the gap: Higher average state pensions for women have been financed in part by lower average pensions for men (Source: DWP and LCP)

The figures above published by the Department for Work and Pensions show a significant narrowing of the state pension gender gap following a shake-up in 2016, according to former Pensions Minister Steve Webb.

He says the new state pension has a number of features designed to improve the relative position of women.

It is a ‘flat rate’, while the old system has an earnings-related element that favoured those paid more, and it treats periods caring for children or elderly relatives more generously, he explains.

But Webb, who is now a partner at pensions consultant LCP, points out the system was not meant not to cost more overall, so higher average state pensions for women have been financed in part by lower average pensions for men.

‘Whilst any gender difference in pensions is unwelcome, it is very good to see that the 2016 reforms to the state pension are starting to make a real difference to women’s pensions,’ he says.

‘The fall in the state pension gender gap from around £28 per week to around £7 per week is very striking, and reflects the way the new system was designed.

‘A year caring for a young child or an elderly relative now generates just as much state pension as a year running a FTSE 100 company, and this change has contributed significantly to reducing the gender pension gap.’