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Women investing an additional one percent into their workplace pensions during their career – even while taking breaks to raise children or care for older relatives – could build bigger retirement pots than if they had no gaps at all.
Fidelity International’s analysis proves the power of one percent in supporting women’s career breaks and could help to narrow the gender pensions gap.
One woman had to take an unexpected career break and lost out on thousands in retirement.
She ended up not paying into her pension for nine years due to health reasons.
As the cost of living crisis continues, pension savers are urged to be more intentional with their savings and contributions to ensure they can build enough for retirement without breaking the bank.
Misbah Sadiq is an employment lawyer at Neathouse Partners and had an unexpected career break.
She said: “The reason I had to have a career break was because my daughter was diagnosed as a Type 1 Diabetic when she was 10 months old.
“I was 2 weeks away from returning back to work following maternity leave, but my care plan fell apart as I had no one who could look after my daughter and check her blood glucose levels and inject her with insulin.
“Financially it was a tough time, as I was reduced to one income. My parents, younger brother and sister-in-law helped out by giving more than they usually would for Eid and birthdays.
“I didn’t contribute anything to my pension for the whole time I was out of work. My pension only restarted when I joined Neathouse Partners, so nothing went into my pension for nine years.”
By increasing their workplace pension contributions by as little as one percent women could gain up to an extra £37,000 in retirement even if they take a career break, according to analysis by Fidelity International.
If Ms Sadiq was paying this extra one percent towards her retirement and didn’t take a nine year break, she could have gotten an extra £330,000.
Based on the Office for National Statistics’ average earnings figures and adjusting for inflation and investment growth, the average pot at retirement for a woman paying in the minimum eight percent into their workplace pension over 40 years without a career break is £306,377, compared to £453,616 for men.
For women who choose or need to take career breaks to raise children or care for older relatives, this gap in retirement funds widens further.
The typical shortfall felt by women taking career breaks is narrowed again if less time is taken out of work. Should a 31-year-old woman choose to take a one-year break, they could see their pension pot rise to £330,317 by increasing their contributions by one percent – over £23,000 more than a woman who contributes the eight percent without a career break and over £36,000 more than had they taken a one-year break without increasing their pension contributions.
Again, the pot at retirement increases if a career break is reduced to six months. A final retirement pot of £337,420 can be enjoyed by women who contribute one percent more into their workplace pension – over £31,000 more than a woman paying in the minimum eight percent without a career break and £37,000 greater than if they had a six-month break without increasing their contributions.
