New research reveals that women on average earnings who take career breaks could be damaging their pension to the sum of £4,680 a year, by not continuing to contribute to a retirement fund during their time away from work.
According to the research from Duncan Lawrie Private Bank, a quarter of women (25%) are currently taking a career break or plan to do so in the future. For the majority of these women (68%) the main reason for the break is to start or look after a family, while a further one in ten (9%) will see the break as an opportunity to travel or live abroad.
However, one in five of those women planning a break (22%) have no idea how they are going to fund this time away from work, leading to concerns that such gaps in employment may not only place financial hardship on individuals at the time, but may also have a long term impact on income during retirement.
While most women recognise that taking a career break will have a negative impact on their pensions, 28% said that they have made no plans to compensate for any loss , with only 11% saying that they plan to make up for it after returning to work by either working longer hours or by retiring later.
Also concerning is that just under a quarter of women (24%) do not think that taking a career break will have a negative impact on their pension. This is despite the fact that a five year break during an average forty year career could leave people with a pension pot shortfall of as much as £70,000.
Richard Boyd, Chartered Financial Planner comments: “When travelling or starting a family, pension planning is never going to be anyone’s primary concern. For some, a pension might be one spinning plate too many to manage, but its importance cannot be underestimated. Those that do let the plate fall may live to regret their decision later down the line.
“Funding in retirement is one of the greater economic issues that our country faces. While the Government seeks ways of understanding how to better fund state pensions, people should be looking out for themselves and at their family’s long term financial security.”
For men the situation is very different, only 13% of men are planning to or are currently taking a career break with over half (53%) already setting money aside in order to be able to afford it. Unlike women, only 11% of men say the main reason to take time off is for child care, the majority 29%, choosing to take time out to travel or live abroad instead.
Richard Boyd continues: “The priorities and approach might be different for men compared to women, but the message is the same. Any extended period where you are not contributing to a pension can have a dramatic impact later in life. While living for the moment is commendable, people need to cover all their bases and ensure that a day in the sun does not end up as a dark cloud hanging over you later in life”.
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