Parenting and Pensions – Navigating Parental Leave and Retirement Planning for Women
When having children and starting a family, your pension is probably the last thing on your mind but the parental leave you choose to take when having children can have a huge impact on your pension contributions and your retirement pension pot. On average, women say they will have £100k less than men saved for their retirement!! Parenting and childcare norms can play a role in the gender retirement gap, with women taking an average of 101.28 days maternity leave in 2014, compared with men who took just 12.22 days paternity leave. Parental leave can be done differently by different employers, but this article will explore some fundamental things to consider with regards to the impact that parental leave can have on your retirement plans and your pension.
With the aim of providing you with the facts so that you can make an informed decision about your parental leave, with the confidence that you will also have the retirement you desire later in life, this article will explore:
- Statutory maternity pay and employer pension contributions
- Retirement planning for women and your post-maternity leave plan
- Child benefit and your pension pot
Statutory Maternity Pay and Employer Pension Contributions
Whilst in the UK you can take up to 52 weeks of maternity leave, you will only be entitled to pay for the first 39 weeks. These 39 weeks of maternity leave include receiving 90% of your average weekly earnings for the first 6 weeks, following this for the next 33 weeks you will receive £151.97 or 90% of your average weekly earnings (whichever is lower). This means that if you choose to take the full 52 weeks of maternity leave, for the final 12 weeks you will receive no pay at all.
If you choose to take extended maternity leave, it is worth considering that your employer may stop contributing to your pension after 52 weeks. You may therefore wish to increase your pension contributions after the 52 weeks, to make up the difference and ensure your pension is not adversely affected.
Retirement Planning for Women and your Post Maternity Leave Plan
Following your maternity leave, you will be left with the huge decision of whether or not you will return to work. If you decide to return to work part-time instead of full-time, your employer’s pension contributions are likely to be in line with your new salary. You may therefore wish to consider increasing your pension contributions, to ensure that you are able to meet your desired retirement income so that you can have a comfortable retirement.
Alternatively, if you decide that returning to work straight after your maternity leave is not for you, you should consider continuing to pay into your pension. In addition to your contributions to your pension, you could be eligible for the government to contribute an additional 20% in tax relief.
Another option is to discuss your pension contributions and your retirement plan with your partner. You could decide to share the impact of reduced contributions if you are working part-time. If you decide not to return to work following your maternity leave, your partner could contribute to your pension to share the impact of the reduced contributions.
Retirement Planning for Women – Child Benefit and your Pension Pot
In addition to considering your pension contributions following your maternity leave, whether you register for Child Benefit can also affect your pension. Consider registering for Child Benefit, even if there are no short-term benefits because it could be beneficial in the long-term. If you claim Child Benefit, you will keep receiving National Insurance credits until your youngest child turns 12 years old. This is important because you need 35 years of National Insurance contributions in order to receive your full State Pension.
Parental Leave and Retirement Planning for Women
When having children, you are probably not thinking about your pension pot, but the parental leave you choose to take when having children can have a huge impact on your retirement pension pot. You can help to ensure that you are able to have the retirement you desire by continuing to contribute to your pension whilst on extended maternity leave or when working part-time. In addition, claiming Child Benefit can also be beneficial in helping you to receive your full state pension.
If you would like to discuss how starting a family can affect your pension with one of our trusted advisors, get in touch here.
A pension is a long-term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates, and tax legislation.
The Financial Conduct Authority does not regulate occupational pension schemes.