Grandparents save working parents £6,604 per year in childcare costs

Grandparents save working parents £6,604 per year in childcare costs

Grandparents are putting in £127 worth of care for their grandchildren every week

Stephen Little
Wed, 11/06/2019 – 11:32

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Seven out of 10 mothers considered not returning to work because of childcare costs, despite nine in 10 mothers wanting to, research from workplace pension provider Now: Pensions alongside the Pensions Policy Institute (PPI) has found.

As a result, grandparents pick up the slack, saving working parents up to £22 billion a year in childcare costs in order to allow mothers to return to work.

The time grandparents spend on filling in for childcare duties amounts to an average saving of £127 per week, or £6,604 saved every year in childcare costs for parents. 

The survey questioned of over 2,000 mothers aged under-45 from the UK. It found that seven out of 10 mothers believed that childcare would be impossible without the support of family and friends.

Thanks to the time spent out of the workforce, women are retiring on an average pension pot worth around a third the size of men because they are working part-time or taking on care responsibilities, according to NOW.

Women who take time off work are retiring with a pension pot of £51,100, compared to men who have £156,500.

Pension top-ups

Echoing the recommendations of the Social Market Foundation think tank, NOW: Pensions says the government should top-up the pension pots of those who have stopped work to care for family members or are working part-time.

This would be the equivalent to benefit paid as pension contributions based upon the automatic enrolment minimum of 8% under the national living wage, which is currently £8.21 an hour.

The top-up would cost the government around £2.7 billion and benefit over three million women.

NOW: Pensions is also calling for the qualifying earnings band on auto-enrolment to be lowered to improve the pension of part-time workers. Currently, the first £6,136 of a salary is not included in pension contributions.

The pension provider says that these two policies below could reduce the gender pensions gap by around 50%, having increased women’s pots by 114%.

According to the Office for National Statistics, despite the rate of working mothers being at its highest ever at 75%, almost three in 10 mothers with a child aged 14 years and under said they had reduced their working hours because of childcare reasons.

Joanne Segars, chair of trustee at NOW: Pensions, says: “The cost of childcare on the UK economy and latterly, on women’s pensions, needs to be urgently addressed by the government. While it’s encouraging to see that more women than ever are in work, more needs to be done to ensure that they have an equal opportunity to save for a comfortable retirement.

“Whilst auto enrolment continues to give workers the head-start they need to prepare for their retirement, the focus now needs to be on helping mothers return to the workforce.

“We are leaving it to grandparents to provide free childcare when we should be adopting a similar model to our EU counterparts whose economies are benefiting by getting mothers back into the workforce faster.”

Daniela Silcock, head of policy research at Pensions Policy Institute, says: “It’s crucial to note that no solution we modelled from the five-point plan gave women a large enough boost to their pension pot to match that of the average man’s.

 “While policy changes, most notably the introduction of a family carer top up and contributions paid on every pound of earnings, go some way to closing the gender pension gap, further social, policy and labour market changes would be required to close the gap entirely.   

“More affordable and accessible childcare plus flexible working options would enable more women to return to work and recommence saving into their pension pot earlier.”

Cash is king – or is it?

Cash is king – or is it?

In its purest form, cash is defined as the notes and loose change in your pocket. But, in investment terms, cash is an asset class just like stocks and shares, bonds or property

Jamie Jenkins
Wed, 11/06/2019 – 08:05

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The saying ‘cash is king’ reflects the belief by some that cash is more valuable than any other form of investment. A healthy dose of cash to stabilise investment portfolios is usually a good idea, but understanding the real value – and potential downsides – of holding onto cash is crucial.

Investors who favour a cash cushion may opt to invest in cash through bank accounts or Isas. A current account will usually pay a very low level of interest, while putting it in a cash savings account or Isa for a year or more may attract a slightly higher rate.

With interest rates currently very low, you may find that none of these cash investment options attract a return high enough to beat inflation, effectively reducing the real value of your savings over time.

Inflation, otherwise known as the increase in the cost of living, currently stands at 1.7%. That means the cost of living is climbing at a rate of 1.7%. For each £100 you’ve spent a year ago, the same things will now cost you £101.70.

When it comes to savings and investing in cash, inflation matters. If you’re earning 1% interest on your cash savings but inflation is ticking along at 1.7%, then after a year your £100 will be worth £101, but the cost of what you might buy has gone up at a faster rate.

This is what we mean by a reduction in real value. And while the sums involved in this example may seem insignificant, it can have a ravaging effect on your savings over many years.

Leaving your money invested in cash over the long-term may not be the best option to reaching your financial goals. The Financial Conduct Authority – the UK’s main financial regulator – has already expressed some concerns about this, particularly when it comes to pensions.

Some people at retirement are invested in cash but don’t appear to have any immediate need for the money, meaning its value starts to erode over time.

Of course, none of this means investing in cash is necessarily a bad thing to do. Where you need immediate access to funds and you want to protect the value from falling in the short term, it’s an entirely reasonable option.

It is also recommended that you always have a cash buffer in case of emergencies. Whether it is an unexpected expense or riding out an investment portfolio drop, having extra cash can definitely come in handy at certain times.

The thing to remember is when you invest your money for the long-term, you’re giving it a chance to grow in value. There is no guidebook to tell us how much and when to invest our money. Ultimately, the longer you leave it invested, the better your chances are of seeing it grow and giving you better returns.

On a very small scale, I hold cash investments for my son. I put aside any spare coins I have in my pocket each day, saving them in a piggy bank. The piggy bank earns no interest but given that Arlo is only one year old, he has an extraordinarily long time horizon for his investments.

I’d better get those savings invested somewhere soon or they will definitely lose value. Who knows, perhaps coins won’t even be legal tender by the time he needs them.

Jamie Jenkins is head of global savings policy at Standard Life