Closing the gender pensions gap: Lessons from Sweden

A staggering 69 per cent of respondents say they considered not returning to work because of the high cost of childcare – the cost clearly drives women away from full-time work.

Most of the intellectual capital necessary for boosting economic growth is held by women. Girls get higher grades in school than boys, and more women than men apply for university. A lot of this intellectual capital is held by many mothers who take time out of their careers to bring up children. 

A modern society searching for economic growth needs to square this circle. Subsidising childcare is a necessary investment that will unlock a high-quality workforce that increases productivity and pays taxes.

Subsidising childcare is a necessary investment that will unlock a high-quality workforce that increases productivity and pays taxes

In the longer term, this may also increase the number of children (ie, future taxpayers) since women will not be forced to make a choice between either pursuing a career or having a family.

Sweden caps childcare at 3%

The UK should look at the Swedish model as an example to emulate. I visited Sweden recently and took the opportunity to talk to a high-ranking civil servant and working mums to learn more about how the system works in practice. This is what I learned.

Parental leave is 480 working days per child and 90 of those days are exclusive for each parent. Larger employers typically top up compensation for high-income earners during that period. The labour laws are such that no one can be made redundant while on maternity leave, and the employee is guaranteed an equal position when returning to work.

Most children enter pre-school between the ages of one and two. The average monthly production cost for a pre-school is around £1,000 per child.

For their first child, parents pay 3 per cent of their income but no more than £115 per month. For three children or more the total fee is 5 per cent, capped at £230.

When I tried to find a stay-at-home mum to interview, I actually failed to find one. One civil servant told me that only in the very wealthy neighbourhoods might I be able to find a few housewives, but even those families also send their children to pre-school as it is considered to be good for children’s social development.

How can Sweden afford this?

The introduction of heavily subsidised pre-schools was ideologically driven – the driver was to help women to combine career and family. Various academic studies show there is a clear link between the cost of childcare and the proportion of women working full-time.

I could not find an official cost-benefit analysis, but it is not as expensive as one might think. Working mums pay taxes, and pursuing a full-time career often results in a steeper salary growth, which results in more revenues for the progressive tax system. 

A family having more money to spend also increases value added tax revenues. The lifetime loss of tax revenues from a stay-at-home mum who eventually starts working part-time when the youngest child starts school should also be considered.

Research shows that children who attended pre-school perform better in school later on. Women working full-time also yield a better return on the public investment in human capital (education). It should not come as a surprise that Sweden has higher GDP per capita than the UK. 

These two positive effects would improve the UK’s productivity and competitiveness on the international stage.

At a time when Britain is stepping away from Europe, we need to ensure we can mobilise the talent that resides internally. Unlocking this talent will put us firmly on the road to giving everyone an equal opportunity to save for their future.

Stefan Lundbergh is head of insights at Cardano