How stay at home mums can build a decent pension

Mark James

by , Team PensionBee

at PensionBee

07 Sept 2020 /  

How stay at home mums can build a decent pension

This article was last updated on 01/08/2023

In 2022, the UK became the most expensive country for childcare costs and according to research from 2023, parents now shell out just under £8,000, on average, in childcare costs per year. This has risen from 2022, when the average cost of sending one child to nursery was £7,212 per year.

As a result some parents (often mums) may take a break from their careers to care for the kids, and this can have huge financial repercussions - especially when it comes to pension saving.

The outcome could be a retirement shortfall in later life, but there are a number of things you can do over the coming years to prevent that. 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 is often cheaper as they’re more flexible and don’t have the same overheads as most nurseries.

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 (2023/24) towards childcare costs for working parents. As with all schemes, you’ll need to meet eligibility criteria. If your child’s 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’re a certain age, it could help you pay a little more into a pension. More information on this scheme can be found on the website.

Protect your State Pension

The full State Pension entitles you to £10,600 per year (2023/24), and while this alone isn’t likely to be enough to live on, it’s 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.

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‘s 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’s 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, you can still fill in the form 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’s 12 years old.

So if you’re wondering whether stay-at-home mums get a 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 £26.6 billion has been ‘lost’ in pension pots which people have forgotten about, so think back to where you’ve worked in the past, start contacting old employers or pension providers and use the government’s free pension tracing service if you need to. PensionBee customer, mum and CEO of Mrs Mummypenny; Lynn Beattie, was shocked to find around £40,000 in old 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. According to the Pensions and Lifetime Savings Association (PLSA), the average retired couple needs £19,900 per year (£12,800 if you’re a single person) to achieve a minimum standard of living in retirement. This amount would cover all of their basic costs, leaving a little room for leisure activities, clothing and holidays in the UK.

For the moderate living standard, the PLSA predicted that a couple would need £34,000 (£23,300 for a single person). In addition to the minimum, this living standard would provide a little more financial security and flexibility for example holidays in Europe and more money for eating out and leisure activities.

To achieve this level, a couple sharing costs with each in receipt of the full new State Pension would need to accumulate a retirement pot of £121,000 each, based on an annuity rate of £6,200 per £100,000.

The highest living standard is comfortable for which a couple would need £54,500 per year (£37,300 for a single person), which would provide further financial security and more money for luxuries, for example beauty treatments and trips to the theatre.

To achieve this level, a couple sharing costs with each in receipt of the full new State Pension would need to accumulate a retirement pot of £328,000 each, based on an annuity rate of £6,200 per £100,000.

Combine and contribute whenever you can

You might not need to start from scratch, if you’ve got lots of old pension pots, you might already be well on your way. Try using our pension calculator to see how you can reach your desired pension pot.

Something else worth considering is bringing your old pensions together, into one simple personal plan (just like PensionBee). This gives you the freedom to contribute with no minimum amounts, and potentially save money on the fees you’d spend if you were managing multiple pots. Remarkably, some providers still impose all kinds of costs on dormant pensions so you may be able to avoid those too.

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.

If you’re struggling to keep up your pension contributions while you’re on parental leave and your partner’s still working, ask them to contribute for you.

Above all else, don’t panic - just save what you can - as anything’s better than nothing. Plus, most UK taxpayers will usually benefit from tax relief on their pension contributions which means that the government effectively adds money to your pension pot. So for every £100 you contribute, you’ll receive another £25 from the taxman.

What could the government be doing to help?

Improving childcare

The UK has some of the highest childcare costs in the Organisation for Economic Co-operation and Development (OECD). On average, full-time childcare for a child under two costs over £14,000 and many families say that they cannot afford it without going into debt or family help. Addressing extortionate childcare costs is necessary to help parents, especially women, to save for a happy retirement.

Help for part-time working parents

Auto-Enrolment has helped many workers around the UK save for their retirement. However the minimum income threshold is £10,000. Any parents earning less than that, because they’re working less hours while also taking care of their children, won’t benefit from being automatically enrolled into their workplace scheme. However, if you earn over £6,240 and ask to join, your employer must make contributions on your behalf. Greater awareness and transparency around Auto-Enrolment’s crucial to ensure individuals don’t miss out.

Greater focus on financial literacy

65% of women and 53% of men are reported to find financial jargon hard to understand. As a result, products like pensions and investments are seen as inaccessible, and women are disproportionately impacted. A greater focus on financial education is needed, whether that’s resources like financial literacy guides or drop-in sessions.

Listen to episode 19 of The Pension Confident Podcast. Our guests discuss preparing to have kids, childcare costs and more. You can also read the full transcript.

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

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