Lifestyle & Family, Personal Finance
1 year ago
In the myriad of things you need to think about when you have a newborn, saving for your retirement generally comes last. However, it’s important to plan ahead so that your parental leave doesn’t affect your financial comfort in the future.
As Steven Cameron, Pensions Director at Aegon, said: “Any gap in pension savings history can leave you worse off in retirement. Maternity leave is probably the most common gap in savings for women and one that can have a long term impact, especially on their savings for retirement.”
Here are a few tips for parents to manage their retirement savings to and through parental leave:
- The statutory maternal pay (SMP) is 90% of your average weekly earnings (before tax) for the first 6 weeks and £140.98 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks. However, your employer can choose to give you more than this, so it’s a good idea to ask what they are willing to pay.
- To compensate the gap in saving, you could increase your pension contributions before you go on parental leave, particularly if your employer matches your contributions. It’s also good to know that your employer has to continue matching your contributions during the paid parental leave.
- It’s also best if you don’t leave the pension scheme you are in as your employer will continue to make pension contributions based on your pre-parental leave salary.
- You only need to make contributions based on your actual earnings during parental leave, making them more affordable.
- When you return to work, you might also want to pay additional contributions to cover periods of unpaid leave and when your contributions were lower.
- Think of reviewing your pension payments when you return to work, if you have another child, when your children reach school age and if you no longer need to pay nursery or school fees.
- Lastly, it’s important to remember that simply being in the workplace pension scheme doesn’t guarantee you enough money in your pension pot to get you a comfortable retirement. It’s essential to plan your finances in advance so you can make sure you can spend quality time with the family you have worked so hard to raise.