Want to close the gender pay gap? Here’s where to start

On International Women’s Day 2021, Becky O’Connor outlines steps to tackle financial inequalities.

The overwhelming financial inequalities between men and women in the working world is hardly the sales pitch offered to teenage girls at careers fairs. But if you are a woman, it’s a realisation of injustice that will make your stomach flip at some point in your working life, if it hasn’t already.

There’s more to the issue of financial equality for women than pay.

To understand why women are paid less and therefore have much lower pensions when they retire, we have to take a few steps back and look at the ‘why’.

It’s not just because women are women. It’s because, generally speaking, women have children. Not all women, but still a majority, will become mothers. The average age of a first-time mother in the UK is about 29.

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Data out from the Office for National Statistics today shows that fathers are far more likely to work than mothers: 91.8% versus 75.5%. The employment rate for mothers with toddler-age children is lowest of all.

The expectation that a woman will therefore, at some point, take some time out of work to a) have children and b) look after those children, is hard-wired into the jobs market. That is why even in their early 20s, women tend to earn less than men. Put simply, they are a less safe bet than their male counterparts.

What can be done to change this? Well, there is not much anyone can do about the biology.

But what policymakers and society as a whole can do is make sure that women, who have so much to offer, are supported and that new parents are given proper choice in who looks after the kids when they are young.

Maternity leave pay tends to be more generous than paternity leave pay, so it almost always makes sense for a mother to take more time off work in the first year of a child’s life. Shared parental leave is a thing, but until the pay for both parents is the same for taking time off, it will be mothers who do so. That’s compromise point one.

The next compromise point for many comes after the initial period of maternity leave, with the realisation that returning to work properly may be unaffordable because of the high cost of childcare, which is typically more than £1,000 a month for a full-time place at nursery. You can either go back to work and pay the childcare that you can’t really afford to maintain your career, or you can cut your hours and make childcare more affordable because you need it less (but you are earning less, too), or you can quit work and save on the cost of childcare completely, but also give up your career and salary.

That’s all for one child. Think forward to two children, and two sets of childcare costs, and the stakes are even higher.

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What parents choose to do is about more than their monthly budget, of course. There’s what each parent wants to do, too. Parents like spending time with their children and plenty of fathers I know feel equally as upset that this opportunity to bond with their young children has never been a realistic option for them.

Choice is what all mothers and fathers need but don’t have, through equal maternity and paternity pay and properly affordable childcare right the way through the early years.

Put all this in place, and women’s pay would begin to equalise as more fathers would choose to be the one to step back, depending on what’s right for the family. An automatic assumption that a female employee will at some point stop work would no longer be baked into the working world, if fathers are just as likely to make this choice. We would equalise pay and therefore pensions with these measures, not overnight perhaps, but it wouldn’t take long. If mothers were able to remain in the workforce during their children’s early years, they would have more time building up the skills and experience for promotions and career success later on, too, rather than feeling like they have to go several steps back down the ladder when they return, bleary-eyed, from years of ‘home-making’.

Until the point we have a more equal system for working parents and more affordable childcare, we can encourage women to contribute more to their pensions and to do whatever they can to build their own financial security against the odds – and they really must not let their own future be the one sacrifice they really regret making later on. But we also mustn’t take the pressure off the government to level the playing field between working parents.

If it does this, I believe we will have gone most of the way to solving the financial inequalities between men and women.

And when we tell girls at school careers fairs that they can have brilliant successful careers and children, we won’t be lying.

Becky O’Connor is head of pensions and savings at interactive investor.