What a career break does to your pension
A worked example for a parent who takes time out, with the State Pension rules and the ways a couple can share the cost.
A worked example for a parent who takes time out, with the State Pension rules and the ways a couple can share the cost.
Priya is 33 and earns £45,000. She and her employer pay £4,500 a year into her workplace pension. After having a baby she spends two years at home, then works three days a week for five years before going back full time.
Two years with nothing paid in is £9,000. Five years at three days a week cuts contributions by 40%, which is another £9,000. That is £18,000 in total.
At 3% a year above inflation, those contributions would have been worth about £44,750 at 67, in today's money.
Paying £4,500 a year from 33 to 67 builds about £259,800 at the same rate. The career break takes about 17% off that.
Money paid in at 33 has 34 years to grow. The same amount paid in at 60 has seven. A gap early in a career costs more than the same gap near the end.
Contributions are added at the end of each year and grow at 3% a year above inflation, with no charges, in today's money. Pensions from Priya's earlier jobs are left out. Every assumption is on our assumptions page.
A parent registered for Child Benefit for a child under 12 gets National Insurance credits that count towards the State Pension. If either parent earns over £60,000, the family can opt out of the payments to avoid the tax charge and still keep the credits.
The full new State Pension is £241.30 a week and needs 35 qualifying years. Priya can check her record and forecast for free on GOV.UK.
Anyone can pay up to £2,880 a year into a pension for someone with no earnings, and tax relief takes it to £3,600. If Priya's partner did that for her two years at home, it would be worth about £18,800 at 67, which covers about 42% of her gap.
Shared Parental Leave lets parents split up to 50 weeks of leave and up to 37 weeks of pay in the first year, so the gap falls on both pensions.
Savings in joint names, or in the ISA of the partner at home, mean both of you keep building something in your own name.
A plan for a couple shows both pensions side by side, so you can both see the gap and decide together how to close it.
Whether to pay more into a pension, and which one, is a regulated advice question that Buzz is not authorised to answer. We can show you the arithmetic. At the same 3% assumption, an extra £100 a month from 40 to 67 would be worth about £48,850 at 67, in today's money, which is more than Priya's gap. If you want a recommendation, we can introduce you to Equity & General, who are authorised by the FCA.
The pension and State Pension rules above apply to unmarried couples too. The difference comes if you separate: in England and Wales, unmarried partners have no claim on each other's pensions. That makes the partner at home more exposed, and it is a reason to keep savings and pension contributions in their name.
Yes. A Financial Plan for a couple models both incomes, both pensions and both retirement dates, so the effect of a career break shows up for the household and for the person taking it.
Run the numbers again with the new dates. In the example, each extra year at home adds about £11,000 to the gap at 67. A plan is built to be re-run when life changes.
An hour with a planner on whether the Financial Plan suits your position.
A written plan: every year to age 100 with UK tax applied, each risk measured in years, and your next ninety days.