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MoneyWeek article - How a 1% pension contribution increase can make up for career breaks

Journalist: Marc Shoffman, Freelance

ended 14. November 2023

I am writing a piece for MoneyWeek this morning looking at the difference an extra 1% of pension contributions can make to people, particularly women, who take a career breaks.

Women are more likely to take career breaks as they tend to take on more caring responsibilities. 

That can mean they end up with a lower pension pot but research by Fidelity shows increasing pension contributions by 1% means women could gain up to an extra £37,000 in retirement.

Is it a good idea to contribute more earlier, especially for women?

How easy is it to convince people to contribute more to their pension when they are younger to overcome career breaks?

How big an issue are career breaks for pension saving?

Kind regards

Marc

 

2 responses from the Newspage community

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Michelle BoakesVerified
Director and Chartered Financial Advisor at Verve Financial
Planning for retirement should be a priority for everyone starting their career, but it is particularly crucial for young women considering a career break. The earlier you begin contributing to a pension the more your savings can benefit from compound growth. Even modest contributions in your 20's can make a big difference down the road.

I suggest that people maximise pension contributions in the years leading up to a planned career break. Consult with your employer about continuing to pay into your pension during your time off, even at a reduced rate. Consider whether your household income can cover contributions during the career break or set aside a portion of your monthly savings to keep building your pot.

With careful planning people taking career breaks can still retire with comfortable pensions, but it requires diligently prioritising retirement savings beforehand as early contributions are crucial.
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Joshua GerstlerVerified
Chartered Financial Planner at The Orchard Practice
The more you can put into your pension, and the earlier you can do this, the better. I have never had anyone complain that they have too much money in retirement.

It is true that if you take time out of work, your employer contributions are going to be reduced. However, if you are not working, you can still contribute £2,880 per year into your pension and the government will add £720 to this giving you £3,600 in your pension for the year. This is more than most people are getting into the pensions from their employers anyway.

With a statutory 3% employer contribution, you would need to be earning £120,000 to received £3,600 from your employer into your pension.