Career breaks could damage women’s pensions
Legal and General has today warned young mothers that their retirement funds could be slashed by up to 20% if they take a career break to look after their children.
The advice follows research from the University of Bristol earlier in the month that stressed that the children of working women do not suffer as a result of their mothers returning to their jobs.
Such findings should not put undue pressure on women to return to work, but they do mean that working parents need to review their financial options more carefully, commentators have noted.
The pensions and insurance company concedes that the average age for a first-time mother has risen over the last three decades from 24 to 30, allowing time for women to accumulate some funds in their pension pot.
But new family-friendly employment regulations introduced in April now allow women to take up to a year’s maternity leave.
And according to Legal and General, ONS trends show that where mum has a second child they take a longer break – often up to five years.
To make up those deficits in occupational pension contributions could take a 50% increase in monthly contributions when mothers do return to work.
Andy Agar, Legal & General’s director of pensions marketing, advised: “If a mum can make contributions or their husband or partner, into a stakeholder pension during their career break this can help to ease the burden of continuing to fund for an adequate pension income in retirement.”
And company pensions are not the only problem that working mothers may face.
Last week Age Concern and feminist think-tank the Fawcett Society called for better financial support from the state for women.
Several factors, including career breaks to look after children, often deplete women’s National Insurance contributions, and consequently their access to a state pension.
A report by the two organisations shows that women receive just 32p for every £1 of income received by men in pensioner couples, and almost a quarter of single female pensioners live in poverty.
With divorce on the increase and men having a lower life expectancy, women and cannot afford to rely on a husband’s income to boost their own, as is ow often the case with the state pension.
Measures that the Fawcett Society and Age Concern are urging the Government to consider include:
– bringing more low paid women and men in to the National Insurance system;
– introducing more state pension credits for those who take time out of work to care for children or older people;
– and improving financial advice, because many women believe they are automatically entitled to a full state pension regardless of their NI contributions.
However, with state pensions likely to represent just 15% of average earnings by the middle of this century, based on current projections, women may have to take heed of the Legal and General’s advice.
