How A Career Break Might Affect Your Retirement And What You Could Do About It

62% of people have taken a career break and 35% said they may in the future. Learn how this could affect your retirement and what you can do about it.

If you have a full-time job for most of your adult life, you’ll spend a significant amount of your time at work. In fact, according to the Independent, the average Brit will spend 3,507 days at work in their lifetime¹.

But most of us have other priorities outside of work including family, friends, and hobbies. That’s why you might decide to take a break from work at some point to focus on those other areas of your life, and you wouldn’t be alone.

According to CNBC, a LinkedIn survey of 23,000 workers in 2022 found that 62% of people had taken a career break already and 35% said they’d be open to the idea in the future².

There are several reasons why you might take a career break, including:

• Raising a family
• Caring for ageing parents
• Travelling
• Retraining for a new career
• Recovering from an illness
• Protecting your mental wellbeing.

These are all good reasons to take some time out of the workforce and a break may allow you to achieve important life goals. However, a career break could affect your ability to save for later life.

The good news is, you can prepare for this so you’re still able to live your dream lifestyle in retirement, despite taking a career break.

Read on to learn how a career break might affect your retirement and what you could do about it.

More than 15% of mothers are “economically inactive” due to caring responsibilities

Women may be more likely to take a career break because traditional gender roles often mean that they still take on a disproportionate share of caring  duties. According to the BBC, 15% of mothers said they were “economically inactive”, compared with just 1.9% of fathers.

Women with children are also seven times more likely to work part-time than men. So, even when they do return to the workforce, their earnings may be lower because they’re still assuming more of the responsibilities at home³.

This inequality could make it harder for women to contribute to their retirement savings and might affect the size of their pension in later life.

For example, figures from Standard Life show that if you started working aged 22, earning £30,000 a year and contributing 5% to your pension (with employer contributions of 3%) you’d have £235,000 in your pot at age 68. This assumes 3.5% salary growth a year, 5% investment growth, and 1% annual management fees.

However, using the same example, if you’d taken a five-year career break starting at age 30, your pension pot would only be worth £208,000 – a difference of £27,000⁴. Note that these figures have been adjusted to show the impact of inflation at an assumed rate of 2%.

So, women may be at a disadvantage when they take a career break to care for children. This is one of the main reasons the UK government reports that women have, on average, 35% less in uncrystallised pension savings at age 55 than men⁵.

Only 18% of 50- to 70-year-olds who lost their job during the Covid-19 pandemic have returned to work

The Covid-19 pandemic shook economies across the world and we’re still feeling the after-effects of that disruption. During that time, many employees lost their jobs and a lot of older people are still struggling to get back into the workforce.

According to the Office for National Statistics (ONS), only 18% of 50- to 70-year-olds who lost their jobs during the pandemic have since returned to work⁶. This means that many people are taking career breaks later in life that they never actually return to work from, and this could affect your retirement just as much as a break when you’re younger.

As the earlier example demonstrates, a career break could have a significant effect on your retirement savings. And, if you’re older, you might not have as much time to rectify this and build your pensions before you retire.

So, regardless of when you take a career break, you might struggle to fund your ideal lifestyle in retirement as a result. Luckily, there are ways to potentially reduce the effects of a career break so you’re more likely to achieve the retirement you want.

3 ways to reduce the effects of a career break on your retirement

1. Increase your pension contributions before taking a career break

If you plan to take a career break in the future, you could consider increasing your pension contributions beforehand. This may help you build your pot early and make up for some of the missed contributions while you’re not working.

If you earned £50,000 a year and made the minimum auto-enrolment contributions (5% employee, 3% employer), the total annual contribution including tax relief would be just over £3,500, according to the MoneyHelper pension contribution calculator.

Yet, if you increased your own contribution by 2%, you’d pay in around £4,800 a year⁷.

Investing these extra funds in your pension early could mean that your wealth has more time to grow. That’s why it might be better to increase contributions before your career break rather than trying to catch up after you return to work.

2. Ask your partner to contribute to your pension on your behalf

Your partner can contribute to your pension on your behalf, and the payments are treated as if you’d made them. That means you benefit from tax relief on the contributions.

If it’s affordable, you could ask your partner to continue paying into your pension during your career break so you can continue building your savings.

Bear in mind that these contributions still count towards your “Annual Allowance” – the amount you can tax-efficiently contribute to your pension each year. This stands at £60,000 or 100% of your earnings in 2024/25.

However, if you’re not earning, as is likely the case during a career break, your Annual Allowance typically falls to £3,600. You may want to consider this if your partner is paying into your pension so you don’t accidentally trigger a tax charge.

3. Make sure that you’re entitled to the full State Pension

The full State Pension payment is £221.20 a week in 2024/25. The payment normally increases each year and you benefit from the State Pension for the rest of your life once you reach State Pension Age (66 in 2024/25, rising to 67 by 2028). So, it could be a useful top-up to your income in retirement, especially if you’ve fallen behind with your savings due to a career break.

However, you only receive the full State Pension payment if you have 35 “qualifying years” of National Insurance contributions (NICs). A qualifying year is any year in which you:

• Were working and paying NICs
• Received NI credits if you were caring for a child or vulnerable adult, or were unemployed, for example
• Paid voluntary NICs.

Fortunately, if you have gaps in your NI record, you can normally pay voluntary contributions for the past six years. Currently, you can also fill gaps all the way back to 2006, but the deadline for this is 5 April 2025.

The government has recently launched a new online tool to make it easier to check for gaps in your NI record and pay voluntary contributions, if necessary. Doing this could ensure that you receive the full State Pension payment when you retire.

Get in touch

Heidi Tresadern is Wealth Planning Director at Benchmark Financial Planning, Maidstone. Heidi has over 30 years’ experience and supports all needs from starting out and building wealth, to wealth preservation for future generations and use of assets to fund long term care.

Please visit our contact page to speak with Heidi and the team.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.

[1] 23.05.2024 British people will work for average of 3,507 days over a lifetime, survey says the Independent

[2] 23.05.2024 More people are taking ‘health and well-being’ breaks — and disclosing them to employers CNBC

[3] 23.05.2024 Mothers ‘paying the price’ for career breaks BBC

[4] 23.05.2024 How taking a career break can impact your future finances Standard Life

[5] 23.05.2024 The Gender Pensions Gap in Private Pensions UK government

[6] 23.05.2024 Reasons for workers aged over 50 years leaving employment since the start of the coronavirus pandemic ONS

[7] 23.05.2024 Workplace pension contribution calculator Money Helper