Lots of us will take a career break at some point during our working lives. Whether it’s planned or unplanned. You might take time off to travel, raise or care for family, manage your health.
Whatever the reason, an unpaid or low pay extended break could impact your pension savings.
Understanding your options and taking steps to help ease any negative effects for the future can be difficult when you don’t know where to start.
So, here's a few ways to help you think about how to navigate your pension options after a career break:
Your pension options after illness or bereavement
1. Check in on your pension/s
If you know your pension provider, contact them to understand the current value of your pension. If you have a workplace pension, you might be able to find this information through your employer’s HR department.
Your pension provider should be able to help you understand any impacts of not contributing during your break. Some workplace pension schemes may offer contributions during periods of illness. Particularly if you’ve been on long-term sick leave.
2. Explore State Benefits:
You may be entitled to state benefits which include National Insurance credits if you’re unable to work due to illness.
These credits can help keep your State Pension eligibility. This is because you usually need 35 qualifying years of National Insurance contributions to receive the new full state pension.
You can find out about National Insurance credits here.
3. Return to Work Planning:
Once you’re ready to return to work, your pension might not be the first thing on your mind.
So, when you are ready, think about increasing your pension contributions slowly. This can help make up for any missed contributions during your time away from work.
Some employers may also match your contribution. Or increase their contribution to your pension if you do the same.
4. Flexible Working and Pension Contributions:
When you return to work, consider flexible working options that still allow you to contribute to your pension.
You will still normally qualify for employer pension contributions. Even if you’re working part-time and meet the following criteria:
- You work in the UK.
- You aren’t already in another workplace pension scheme.
- You are at least 22 years old, and under State Pension age.
- You earn more than £10,000 a year for the current tax year.
Your pension options after parental leave
Taking time off work to raise children is another reason someone might need a career break. Here’s how you can manage your pension during this time:
1. Parental Leave and Employer Contributions:
Before you start parental leave, check that your employer will continue to make pension contributions based on your usual salary. Not on reduced statutory pay.
Make sure you speak to your manager or HR department to talk through whether this is available to you.
If your leave is planned, you might want to think about increasing your pension contributions in the run up. Or think about adding any bonuses to your pension, instead of taking them as cash.
This is a handy way of reducing your income tax, too.
2. National Insurance Credits:
If you’re registered for Child Benefit with a child under 12, you’ll receive Class 3 NI credits. This counts towards your State Pension.
These credits can help cover gaps in your NI record during your time out of work. Most people will need at least 35 years of qualifying earnings to receive the full state pension.
Buying Back National Insurance Contributions
If you've had a career break, or you’ve missed NI contributions, you may be able to buy some of them back. This is to help increase your state pension payments in the future. You should think about whether one-off payments now are worth the yearly increase in state pension in the future.
Here’s how buying back National Insurance Contributions works:
Step 1:
Use the government’s online service to view your NI record and check for any gaps. It will show you how many qualifying years you have and how many you need for a full State Pension.
Step 2.
You can make Class 3 voluntary NI contributions to fill gaps in your record. These contributions can be particularly useful if you’re close to retirement age and need to ensure you qualify for the full State Pension. You can buy back NI contributions for the last 6 tax years.
Cost vs. Benefit of buying back National Insurance contributions
It’s important to make sure you have the retirement you want. So, consider if you could rely on the state pension alone.
Think about whether the cost of making voluntary contributions would benefit you in the long run. You can find out more about the costs here.
You might find that paying into your workplace pension, or even a personal pension, will work better for you in the future.
General Tips for Managing Your Pension After a Career Break
1. Regular Reviews: Regularly review your pensions, especially before a planned career break. Or after an unplanned career break. Understanding where you stand helps you plan better for the future. Make sure you know how much is in your pension, and what you’re currently contributing to it.
You could use our Retirement Lifestyle calculator, or Navigator Calculator to see if you’re on the right track. Or if a personal pension could help you to achieve your retirement goals.
2. Increase Contributions: If possible, increase your pension contributions when you return to work. Catching up on missed contributions can help bridge any gaps created during your break.
3. Think about consolidating: If you have a few workplace pensions dotted around, you might find that consolidating is an option for you. Not sure if you have a lost workplace pension? Use the government website to help you.