A report by Insuring Women’s Futures says taking career gaps to look after children followed by stints of temporary and part-time work can seriously damage your pension pot. The IWF says at age 69, the average man’s pension pot is valued at £179,091 while a woman’s is £35,800.
So in support of International Women’s Day, Lemonade Money is urging working and stay-at-home mums to take control of their financial futures and build up their pension pot. Here’s how:
1. If you’re a working mum, calculate the household outgoings with your partner and work out who’s paying what. If you find most of your salary is going on childcare costs and food bills etc, see if these can be shared out. Hopefully this will enable you to divert a proportion of your income (no matter how small) into a personal pension plan. By building up pension entitlement in your own name, you won’t have to rely on your employer’s pension scheme or your partner to bail you out in the future.
2. If you’re a working mum earning under £10,000 a year, you won’t automatically be enrolled into your employer’s pension scheme, however you can still opt in and you may receive employer contributions.
3. If you’re a self-employed mum, the chances are you’re ploughing any profits into the home or business, rather than a pension. HMRC however, does not tax your pension contributions so for 20% taxpayers, paying £80 from your taxed income into a pension will result in £100 being invested in the pot for you. For high rate tax payers, the same £100 investment will cost just £60.
4. If you’re not working, see if the household finances can stretch to your partner paying part of their salary into a personal pension in your name. If you pay up to £2,880 into a personal pension per annum, the Treasury will increase it to £3,600. How? The pension provider claims this extra money - 20% tax relief - from HMRC.
5. If you’re not entitled to child benefit due to your partner’s earnings, still claim the child benefit in your name as this will entitle you to credits toward the state pension. The child benefit you receive will then be recouped via your partner’s tax return.
6. If you’ve returned to work after the birth of your child and grandparents or relatives are taking responsibility for your baby or toddler’s care, you can transfer your National Insurance credits across to them, boosting their State pension pot. Simply sign a National Insurance credit form and that family member will receive credits for looking after your child.
7. If the thought of going through your household budgets leaves you cold, we’re here to help. Our online tools make the process easy, there’s a free and quick financial health check so you can see where you’re at financially and if you need extra support, Lemonade Heroes can help you get your finances on track.
With the State pension age increasing to 67 from 2028 and rumours it could be 68 in 2044 and 70 after that, mums need to build up their pension pots now – otherwise they will have a long time to wait before they even pick up a basic payout.