How stay at home mums can build a decent pension

Mark James

by , Content Strategist and Copywriter

07 Sept 2020 /  

07
Sept 2020

How stay at home mums can build a decent pension

Recently, the Family and Childcare Trust released their 20th annual Childcare Survey, and it’s fair to say the findings make pretty bleak reading for families across the UK.

According to their research, parents shell out over £6,800 a year on childcare. And the cost of childcare is rising - that figure’s 5% higher than it was last year.

As a result many parents (particularly mums) halt their career to care for the kids, and this can have huge financial repercussions - especially when it comes to pensions.

The outcome is a lot of fear about a retirement shortfall, but you shouldn’t give up hope. Here’s our top tips for stay at home mums looking to build a better retirement.

Reduce childcare costs where you can

One of the best ways to increase your future pension is to pay more into it. Of course, this is heavily dependent on how much money you’ve got left over after paying all your other necessary costs. So why not do what you can to reduce those hefty childcare costs? Thankfully, you’ve got several options here.

Firstly, not all types of childcare costs the same. For example, hiring a childminder instead of sending your child to a nursery can save £600 a year. And if you have a spare room and don’t mind having someone living with you, you could even consider hiring an au pair. The government recommends paying them no less than £70 a week, and this could save over £3,000 a year compared to a nursery - just bear in mind you won’t be able to use childcare vouchers or working tax credits towards this.

Claim any benefits you’re entitled to

Another way to reduce costs is to claim any benefits you’re entitled to, including tax-free childcare. This is a government scheme that contributes up to £2,000 per child a year towards childcare costs for working parents. As with all schemes, you’ll need to meet eligibility criteria. If your child is two-years old and you receive other benefits like income support or Universal Credit, you may be entitled to up to 15 hours a week of free childcare. While this only applies to children who are a certain age, it could really help you pay a little more into a pension. More information on this scheme can be found on the Gov.uk website.

Protect your state pension

The full state pension entitles you to £9,110 per year, and while this alone isn’t likely to be enough to live on, it is a good foundation for your retirement. However, to get the maximum amount you’ll need to have paid National Insurance contributions for at least 35 years.

Now, National Insurance contributions are something you probably associate with working, but did you know that your years spent away from the workplace can still qualify towards your state pension? You just need to have registered for Child Benefit.

Child Benefit is a payment you can claim if you’re looking after a child under 16, or under 20 if they’re in education or training - although if you or your partner’s individual income is above £50,000 you may have to pay a tax charge. If this is the case and you don’t want to claim Child Benefit as a result, fill in the form anyway as this protects your National Insurance credits. Foster carers can do this too by filling in a different form. You’ll get National Insurance credits when you claim Child Benefit until your youngest child is 12.

So if you were wondering, do stay at home mums get state pension? The answer should be yes, so long as you take the necessary steps outlined above.

Look for any lost pension pots

It’s estimated that as much as £400m has been ‘lost’ in pension pots which people have forgotten about, so think back to where you’ve worked in the past and start contacting old employers or pension providers. We previously worked with mum and money blogger Mrs Mummypenny and she was shocked to find around £40,000 in dormant workplace pensions.

So why not track down your old pensions too? You might be surprised at what you discover. It’ll also help you when it comes to the next step.

Set a retirement savings goal

Once you know what you have, it’s time to start planning ahead. There’s lots of pension figures bandied about - plenty that will give you panic - but if you’re just after a comfortable retirement, then the numbers might not be quite as bad as you think.

According to a recent Which? survey the average retired couple needs £17,200 a year to cover household essentials - such as food, utilities, transport and housing costs - rising to £25,000 allowing for extras, such as a European holiday and leisure activities.

Per person that’s a not too massive £12,500 a year. So, if you’re entitled to the new full state pension of £9,110 per year, then according to the Which? research you only need to supplement it with around £3,400 per year. Still, that’s not a tiny figure - so how can you reach it?

Combine and contribute whenever you can

The Which? research is based upon achieving a pot of £169,175 to sit alongside your state pension, and handily they’ve broken down how a couple can reach this, depending on which age they start saving. Check out the figures below:

  • £213 a month from age 20
  • £276 a month from 30
  • £384 a month from 40*
  • £647 a month from 50*

*If you’re not earning, you’ll only receive tax relief on contributions of up to £3,600 per year (£300 per month). Any contributions above this threshold won’t be eligible for tax relief.

Bear in the mind that these figures are based on starting from scratch, so if you’ve got lots of old pots these figures could be smaller! Try using our pension calculator to see how you can reach that £169,175 figure (or £84,587 if you’re not in a relationship).

Something else worth considering is bringing all your old pensions together, into one easy-to-access personal plan (just like PensionBee). This gives you the freedom to contribute when it’s affordable, and can also spare you from hefty fees. Remarkably, some providers still impose all kinds of costs on dormant pensions.

Above all else, don’t panic

When it comes to contributing, try to see where you can cut costs, as you might be surprised at what some small sacrifices bring. Plus, If you come across money - some inheritance, perhaps - consider putting some of that towards your pension. Explore what kind of work you can do from home around the kids, too, as you might be surprised what’s possible.

Above all else, don’t panic - just save what you can - as anything is better than nothing. Plus, remember that all basic rate taxpayers have their contributions into a pension boosted by 25% thanks to tax relief. This means that for every £100 you contribute you’ll receive another £25 from the taxman. Not bad, eh?

Risk warning The information in this article should not be regarded as financial advice.

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