The following is a transcript of a bonus episode of The Pension Confident Podcast - Personal finance tips for parents part one. You can listen to this bonus episode or scroll on to read the conversation.
PHILIPPA: Hi, and welcome to another bonus episode of The Pension Confident Podcast. This time we have a crash course for new parents from the benefits you could be eligible for, to the impact parenthood could have on your pension! So, listen up and find out how you can financially plan for this exciting new chapter.
Before we get into it though, always remember, anything discussed on the podcast shouldn’t be regarded as financial or legal advice, and when investing your capital is at risk.
The reality of Shared Parental Leave
PHILIPPA: Let’s kick things off with parental leave. In episode three, we were joined by Sam Brodbeck, who’s Money Advice Editor at The Telegraph, as he shared his own experience of taking Shared Parental Leave with his wife.
SAM: Yes. So, I used Shared Parental Leave with my first child, where effectively, I nicked a little bit of my wife’s maternity leave. I took three months on top of what would have been normally just two weeks.
PHILIPPA: As a sole carer?
SAM: No. So I mean, I think that the idea is that I’d have stepped in and she would’ve gone back to work and that would help her career, and that’s the sort of theory behind it. We actually decided to take it at the same time, because we thought maybe the early stages would actually be harder. But it was a bit of a headache, I mean, even to get it set up, speaking to the HR department, I don’t know. Maybe I was the first man to ever use it in the company.
PHILIPPA: When was this?
SAM: This was in 2018. So, it’d been around, but I think 3% of men have used it.
PHILIPPA: Numbers are tiny.
SAM: I can’t think of I’ve ever seen an advert anywhere that tells you about it. People don’t talk about it, I don’t think. Even when I’d done it, I spoke to people in the company, and they just didn’t know it existed.
PHILIPPA: Yeah, it’s a problem. I think the government had high hopes. They were hoping for, I think, 20% take up in the first year. Well, that didn’t happen. I mean, even now. I mean, it’s hard to get a handle on the actual numbers, but it’s somewhere around 3 to 7%, something like that. It’s really, really low.
SAM: Yeah, that’s right. And it’s obviously a financial problem, because in general, women will get paid more while they’re off and men won’t. So, I wasn’t - I was unpaid for the bit above two weeks.
PHILIPPA: And that’s a huge problem, isn’t it? For men taking it up. I mean, most families just can’t afford to do that. And the Statutory Pay is really low isn’t it, that you actually get?
SAM: Yeah, it’s £100 a week or something.
PHILIPPA: I mean, that’s not going to pay the rent, is it?
SAM: But that’s the reason most people don’t take it, I think, probably. Apart from not knowing that it exists.
Statutory rights for adoption
PHILIPPA: And of course, families come in all shapes and sizes - so let’s hear from Senior Digital Editor at Money Week; Kalpana Fitzpatrick. In episode 19, she talked about adoption and she crunched the numbers on Statutory Parental Leave.
PHILIPPA: It’s important to remember, isn’t it? Not everyone goes through pregnancy. People adopt as well. What statutory rights do you have if you adopt?
KALPANA: There are different rules when it comes to adoption. So Statutory Adoption Leave’s 52 weeks. Only one person in a couple can take adoption leave.
PHILIPPA: OK.
KALPANA: That’s important to remember.
PHILIPPA: Yeah.
KALPANA: You get Statutory Adoption Pay for 39 weeks and it’s the same as Statutory Maternity Pay.
PHILIPPA: So, it’s the same but for only one parent?
KALPANA: Yeah and again, we don’t talk about it. So, ask the question. That’s important to know.
How to budget for a new baby
PHILIPPA: What about when your bundle of joy actually arrives? New dad and PensionBee CTO; Jonathan Lister Parsons, knows all about that. Here he is in episode 19 sharing how he budgeted for the arrival of his first baby.
PHILIPPA: Thinking about the start, Jonathan, the smart thing to do has to be to audit your finances and your expenses at that point? So you at least start from as good a place as you can.
JONATHAN: Yeah, I wouldn’t say that my wife and I were the most organised people in the world when it comes to doing that, but we did actually sit down and do a spreadsheet budget, and went through everything so we could look at just where we’re starting from.
PHILIPPA: So everything’s on there? Groceries, car payments, mortgage, rent?
JONATHAN: Everything. It’s extraordinary how much money we were spending on things that we didn’t expect to be big expenditures like holidays, how much you spend on gifting, how much money you spend on presents for your friends and family. It’s nice to find out we were reasonably generous.
PHILIPPA: So, looking ahead at the new expenses, you’re perfect for this. Your little girl’s six months old. In terms of kit, the sort of kit that Justine was talking about, you didn’t have to buy everything new. Did you buy everything new?
JONATHAN: No, no. Within a few months of my wife; Bonnie, being pregnant, we were being offered lots of useful things that people had from when they’d had children. Clothes obviously, but also, we were offered a buggy, a playpen - little things that we didn’t even know existed.
Anticipating early costs and childcare expenses
PHILIPPA: You’ll need a nest egg for all that nesting, surely? And who better to help us with all that than Mumsnet CEO; Justine Roberts CBE. In the same episode she unpacked all those early costs that parenthood can involve.
PHILIPPA: Let’s talk about the plan. Justine, what’s your thoughts? If, like rational people, you’re thinking about the money ahead of time, how early do you think you should start thinking about that?
JUSTINE: I suppose for many people it’s actually about their living situation as much as anything. Having said I didn’t think about it, it was important that we moved out of our one bedroom flat, into a house with a spare room. I think people do begin their nesting without necessarily thinking and planning every financial detail. What people say on Mumsnet is that people focus a lot on the early costs. Things like buying pushchairs and all the paraphernalia that goes with babies.
PHILIPPA: Kit?
JUSTINE: But actually, the real strain comes from childcare. That gap between the end of parental leave and when government support kicks in, which is usually when your child’s about three years old. It’s that and the fact they often then have to juggle their work choices, and don’t go back to work full-time as they perhaps anticipated. That puts a real strain on the finances. So, I do think you need to start thinking about it, because it’s quite big sums we’re talking about, reasonably early. You need to look ahead to that period, not just focus on the baby stuff.
Exploring Tax-Free Childcare Allowance and Child Benefit
PHILIPPA: As everybody knows, childcare is the big one! So what support is out there to help with that heavy financial burden? Let’s hear from Kalpana again, with all the need-to-know numbers.
PHILIPPA: There’s some help available on childcare costs. Kalpana, have you got those numbers in your head?
KALPANA: I do. So, it’s the Tax-Free Childcare Allowance. And actually, it surprises me, I speak to mums at the school gate who’ve no idea what the Tax-Free Childcare Allowance is. Basically, you have to be working for this and there’s a threshold. If you’re working, you can get up to £2,000 per year from the government. I’d say, go onto gov.uk and sign up to that and get some money. It’s not a lot, it doesn’t fix all your problems at all. There’s still an issue with childcare costs and I think that’s something the government really needs to address.
I also want to add, this is really important to me, and I remember when I wrote about this, so many mums text me. Mums that I hadn’t heard from for ages. When they read that this article was about Child Benefit. Now, I hate the complexity that comes with this. But, you should still register for it because it gives you National Insurance credits and that goes towards your State Pension.
PHILIPPA: Absolutely!
KALPANA: Women miss out on something like £20,000 in State Pensions because they feel, “oh, we’re not entitled to this benefit, because our income’s too high as a household”. I’ll always make a little bit of noise about that. If you’re not registered for Child Benefit, just register for it. Even if you’re above the income threshold because you still get the National Insurance contributions.
PHILIPPA: Yeah. So there’s a pension link there, in terms of State Pension entitlement at the end of your life.
Parenthood and the Gender Pension Gap
PHILIPPA: Speaking of pensions, have you heard of the Gender Pension Gap? Let’s hear from Romi Savova; CEO of PensionBee, and Emilie Bellet; Founder of the financial education company, Vestpod. Right back in episode three they discussed how taking career breaks for motherhood can have a major impact on women’s pension savings.
Emilie, what do you see as the key issues driving this gap?
EMILIE: So I mean, if I just take my personal example, I thought starting working I’d actually never stop working but when you look at women’s career we have some - we may have children. We’re still the primary carers for families. So, what happens during these times is that we don’t earn, we don’t save money and this money is not compounding over a longer period of time.
PHILIPPA: I mean, Romi, there’s good data on this, isn’t there? I was looking 2021 last year, Office for National Statistics, they said women with dependent children are seven times more likely to work part-time than men. It’s a big difference, isn’t it?
ROMI: It’s a big difference and it’s often socially imposed onto the women. We’ve done a lot of research into this topic and even when the woman is the higher earner. So let’s say that the gender pay gap doesn’t apply in your family, even then women are more likely to take time off to look after children.
PHILIPPA: Yeah, 15% of mums say they are totally economically inactive because of caring responsibilities.
Starting a conversation, before starting a family
PHILIPPA: And finally, here’s Emilie again talking about how important it is to have an honest conversation about money with your partner if you’re thinking about growing your family.
EMILIE: Maybe I can talk more about the conversation you can have with your partner. So I think when you’re planning for a family, it’s really important to have this conversation around, “OK, who’s going to take time off and when? Plan a bit for your finances, what’s going to happen? Because very often women do this on their own, and they’re going to look at, “OK, how much time am I going to be off work? How much will childcare cost?” and they will compare this to their own salary, and they will make a decision and say, “OK, I’m not going to go back”. So, I think it’s trying to look at joint incomes, and how much you can pay for childcare, and see childcare more as an investment rather than a cost. But I think it’s really important to have these difficult conversations beforehand.
PHILIPPA: And that’s a wrap, your crash course on the benefits - and financial realities - that new parents often face. If you’d like to hear those discussions in full you can listen back to all those episodes wherever you get your podcasts. The Pension Confident Podcast is on YouTube and the PensionBee app too. You can subscribe to the series right now and remember to keep an eye on our feed - our next episode will be live at the end of the month.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
