Parents' Pension Penalty
- BetterAskAdam.com
- Jan 22, 2024
- 2 min read
Taking time out of work to raise children can lead to a pension savings shortfall of £183k
Even working part-time until children reach secondary education could mean a pension penalty of nearly £92k
Those are the findings of a new report - 'The Pensions Parenthood Penalty Holding Women Back' by Royal London (Jan 2024)
According to ONS data, the most common arrangement among families in the UK is for the father to work full-time, while the mother works part-time until the youngest child in the family is 11. This is the set-up for around half of families. The reverse, where the mother works full-time and the father works part-time only occurs in about 2% of families.
Women are significantly more likely than men to feel that working part-time was the only option after having children.
Women – 63%
Men – 40%
20% of women who retired early did so to become a caregiver, compared to just 8% of men.
82% of women would be more likely to stay with their current employer if they were better supported with the menopause and the symptoms they experience
As a result of leaving the workforce to take on family responsibilities, mums can miss out on pension savings of nearly £92k by working part-time until their child reaches secondary school. And the consequence of leaving work altogether for the same period can create a gigantic £183,000 hole in pension savings.
That's not the only problem. If women aren't working, they can also miss National Insurance contributions. That can create a double whammy, meaning women could face a reduced amount of State Pension they are entitled to without the full 35 years of NI contributions or credits.
The problem can be even worse for women, because they tend to live longer than men, meaning they face a longer retirement with less pension savings.
So what to do?
Protecting Your State Pension - If you are not in paid employment
One thing that can help is that mums who look after children and aren’t earning can get protection for their state pension by claiming Child Benefit, which automatically provides NI credits until the youngest child is 12. Those families who don’t want to receive Child Benefit, because one parent breaches the earnings limit, can still receive credits, but the non-working parent needs to officially ‘claim’ Child Benefit in order to receive the NI credits.
Making The Right Calculation
Many think that it’s not worth going back to work because the childcare costs wipe out the money they would have made by going to work. But many people forget that you get a big financial boost from saving into a workplace pension - not least because the employer will contribute to your pension, in addition to paying your salary. So make sure you take that into account when assessing the value of returning to work.
Partner Boost
If you decide to go to work, if your partner has extra savings, you could choose to raise the level of pension contribution and make up any shortfall in the household finances from your partner's savings or income.
