How to avoid the career break pension drain


One of the biggest contributors to the overall gender investment gap is pension size. The main reason behind that? The impact that taking a career break has on your pot.

We’ve talked elsewhere about the potential impact a career break can have on your money but now we’re going to dive specifically into pensions. When we asked women about the difference in their pensions at home, 44% of women say their partner has a bigger pension than them.

We commissioned independent research with 5,000 UK adults*, which found that the average man has almost £55,000 in their pension, compared to £19,000 for women – a £36,000 gap. These figures cover all ages, and it’s likely that as we get older, this gap widens. So it’s unsurprising that only a quarter of women think their pension saving is on track (compared to nearly half of men).

One of the biggest factors behind this is the impact of career gaps. Many women choose to cut their pension contributions while they’re on maternity leave. And when they return to work, they may also keep contributions low while they are balancing the costs of childcare.

But did you know that taking just two year-long breaks from paying into your pension can leave you more than £26,000 worse off come retirement? For example, let’s consider a woman who starts work at age 22, and puts 5% into her pension each year. This is topped up with pension tax relief, with her employer matching her 5%. Let’s assume that her salary rises by about 2% each year (which is in line with what average inflation is meant to do) and that her pension pot sees 4% investment growth each year (which is what markets have produced over the long term).

If this woman takes no career breaks and sees no dip in her salary, from part-time working for example, then she ends up with a £474,041 in her pension pot at the age of 65 – pretty impressive.

However, if she has two children and takes a year’s maternity leave, contributing nothing to her pension in this time, she has just over £26,000 less in her pension when she reaches 65. And if instead she takes a five-year break while having children, and returns to work part-time, then her pension pot is £65,000 smaller.

Many women also return to work part-time after career breaks – either temporarily or for the rest of their career. In this instance, most keep their percentage pension contribution the same, which means less money going into their pot and less employer matching (if you work four days a week you’re earning 20% less, meaning less is going into your pension).

So, if someone took the same two year-long breaks as before, but then also worked part-time (three days a week) from when she has her first child up to when her youngest goes to school, she’d be £60,000 worse off by the time she retires. If, rather than going back to full-time working when her kids reach school age, she carries on working three days a week for the rest of her career, she’d miss out on £158,000 in her pension – an alarmingly large amount.

Part of the impact is that we’ve factored in women having their children at age 30 and 33, so money that would have been put in their pension in these years would have more than 30 years to grow and compound. (Put simply, compounding is where you earn interest on your interest as your pot grows – it can supercharge your returns.)

So with those big figures in mind, what can we do to help close this pensions gap? It’s very easy to cut pension contributions, as it feels like an easy bit of money to claw back at a time when money is likely to be quite tight. But it’s definitely worth considering the cost of this over the long run, and the impact it will have on not just your pension but your retirement.

5 practical tips to close the pension gap:

1. Work out your rights:

Make sure you include pensions as part of your discussions with HR when you’re organising your maternity leave. Ask what your company provides, as they may include enhanced pension contributions as part of their maternity package, and check what rate you’re currently paying in.

2. Don’t automatically cancel your pension contributions:

Many who near maternity leave will be able to change their pension contributions or cancel them altogether, as it will be deemed a ‘lifestyle event’ for most schemes. Don’t automatically assume it’s an easy way to save some cash, as the effects can last a long time.

3. Work out how much it will cost you:

You’ll pay pension contributions based on your maternity salary, rather than your pre-maternity pay. This means that if you pay in the same percentage contribution, but it’s based on a lower salary, you’ll be putting less away. This has two sides: on the one hand it may take less out of your pay each month than you think, but on the other, you may need to make up the shortfall if you return to work.

4. Talk frankly with you partner about your finances:

Before you go on maternity leave you’ve got a lot to think about. But make sure that if you have a partner, you talk about the nitty gritty of how your joint finances will work while one or both of you are off work. As part of this you could agree to continue your pension contributions, with them subsidising the cost, or agree to put more money into your pension ahead of your leave.

5. And finally, get the right pension credits:

If you decide to take a career break, then make sure you claim child benefit. Even if you’re above the household income threshold to be eligible for it, you will still get valuable National Insurance credits from the Government that will help you to build up your state pension.

*All the information in this article is from an independent survey of 5,000 UK adults carried out for AJ Bell by Opinium between 26 and 30 August 2021.

These articles are for information purposes only and are not a personal recommendation or advice.

ajbell_laura_suter_MM's picture
Written by:
Laura Suter

Laura Suter is Personal Finance Analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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