Seven pivotal points to ensure you don't lose out financially when you become a parent, by the Association of British Insurers.
Your financial future becomes even more important when having a child, and while it is completely understandable to not be thinking about your long-term savings when you're planning to start a family, it's worth being aware of the key pitfalls and areas to watch out for, as taking time out to have and raise children can have an adverse effect on your pension.
Yes, a pension seems a long way away! But it still should be something you try to think about before going on parental leave, and when you return to work.
Did You Know? To get the full State Pension (currently £203.85 per week, or £10,600 per year) you may need 35 qualifying years of a National Insurance record and at least10 qualifying years on your National Insurance record - these do not have to be 10 qualifying years in a row.
Here are some quick wins you can think about doing now to help ensure you don't lose out in future.
Child Benefits: As of 2024, the government has raised the income threshold for Child Benefit. Previously, Child Benefit was withdrawn when one parent's earnings exceeded £60,000. This has now been increased to £80,000. Child Benefit won't start to be reduced until one parent earns more than £60,000 - up from £50,000. By claiming Child Benefit, you bank National Insurance Credits towards your State Pension.
Carer's Allowance and Credits: if you take time out to care for your children or relatives, you can get Carer's Credit if you're caring for someone for at least 20 hours per week (or Carer's Allowance if you care for 35 hours per week). This again banks credit towards your State Pension.
Grandparents Credits: Working age grandparents could qualify for Class 3 National Insurance credits if they look after a child under 12. Working parents can give up the Child Benefit credits they receive and donate them to their child's grandparents.
If you increase your pension contributions by just 2% in your 20s, this will mitigate against reduced contributions in your 30s (as a result of taking time out of the workplace to have children).
As well as your private pension (either through your workplace, or personal savings) you can still get the State Pension if you take time out of work to care (for children, ageing parents etc). However, this is not automatic - you need to tell the Government about your change in circumstances.
If you earn over £10,000 and are classed as a 'worker' and are aged between 22 and the State Pension age, your employer must opt you into a workplace pension and contribute money towards your pension - this is extra cash for your future which, as it will be invested, will be worth a lot more when you get to retirement. Would you say no to a pay rise?
Legally, you can take up to 52 weeks of maternity leave, although this must only be paid for a maximum of 39 weeks (your employer may have a more generous policy). When you are on maternity leave, your employer must still pay the same amount of money into your pension pot, although your contribution will be a percentage of your actual maternity pay.
Luckily, you don't have to be in work to keep saving for your future. While payments to your workplace pension will end when you stop work, you can keep paying into a personal pension and get tax relief according to which income tax band you sit. You can find details at: Gov.uk
Consider how you can share the effect of lower pension payments between you as a couple. One parent can pay into the other parent's pension, and this still gets tax relief.
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Hetty Hughes, Association of British Insurers
Want to find out more? Visit GOV.UK.
You can also check your National Insurance record here.