With Oasis’s long-awaited comeback tour now underway, fans worldwide are well and truly reliving the glory days after sixteen years of nostalgia, sibling rivalry and tabloid speculation. But while this break might not have dented the Gallagher brothers’ fortunes, for everyday workers, stepping away from their careers for a prolonged period could have serious financial consequences down the line.
Analysis from Standard Life, part of Phoenix Group, finds that an individual who begins working at 22 on a salary of £25,000 per year and pays the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could build up a total retirement fund of £210,000 by the age of 68, adjusted for inflation. Taking a sixteen-year career break – like Oasis – at the age of 30, could substantially dent this, resulting in a pot £77,000 smaller (£133,000).
While few people step away for over a decade, even shorter breaks can carry significant costs. A one-year career break at age 30 could shrink a final pension pot to £205,000 - £5,000 less, while a three-year break could have an even larger impact, resulting in a pot of £195,000 (£15,000 smaller than if they had not chosen to have a break).
*Assumptions: Starting salary £25,000, 5% employee and 3% employer monthly contributions, 5% annual investment growth. Figures are reduced to take effect 2% inflation. Annual Management Charge of 0.75% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.
Dean Butler, Managing Director of Retail Direct at Standard Life comments: "While dropping everything and taking time out is very tempting, and sometimes unavoidable, in reality, the financial impact can be quite stark. Even short gaps in employment can have a lasting impact - not just due to the loss of earnings during that time, but also because of the often-overlooked hit to your pension, with both your own contributions and your employer’s pausing. These missing payments can really add up by the time you reach retirement. Contrary to Oasis’s advice, you really can’t just “roll with it” when it comes to securing your finances for the future. For those considering time off, practical steps like continuing small contributions, claiming the right benefits, or making up missed years later can help ensure that a break doesn’t cost your retirement security."
Dean Butler shares his top tips to feel more confident about the future when taking a career break:
1. Keep saving into your pension plan if you can
“If you’re taking a break from work, it’s a good idea to keep your pension in mind, as even small amounts saved now can make a big difference in the long run. In most cases, if your break is unpaid, your employer won’t continue contributing to your pension unless you’ve arranged something specific with them in advance. So it’s worth checking what your options are – especially if your employer has agreed that you’ll return to the same job after your break. If you’ve handed in your notice and are leaving the workforce completely, you could ask your pension provider whether you can keep contributing into the pension your employer set up. If that’s not an option, you could look into setting up a new plan to keep your savings on track. If you’re not earning or your income is below £3,600 a year, you can still pay into a pension and benefit from tax relief. The most you can contribute and get tax relief on is £2,880 each tax year – the government will then top this up with £720 in tax relief, making a total contribution of £3,600. If you go back to work part-time, your contributions (and your employer’s) will typically be lower than if you were full-time. However, this doesn’t stop you increasing your own contributions further. If you earn less than £10,000, your employer doesn’t need to automatically set you up with a pension plan, but they will need to set one up if you ask them to. As long as you earn over £6,240, they’ll need to pay in too.”
2. See what you can do for your State Pension
“To get any State Pension, you normally need to have worked and paid National Insurance for a minimum number of years, but you might be able to build up your State Pension with National Insurance credits. You might get these if you’re claiming particular benefits, including child benefit, so be sure to claim that if you’ve taken a career break to look after children.If you’re not paying National Insurance but you have a partner who is, it’s worth making sure the child benefit claim is in your name. That way you can get the National Insurance credits or they may be able to transfer credits to you. Currently, if your partner earns £50,000 or more, your household will face the ‘High Income Child Benefit Charge’ – a tax charge that reduces the child benefit you get. If they earn £60,000 or more, the charge cancels out your child benefit altogether. However, even if the charge affects your household, it’s worth submitting a claim anyway for the National Insurance credits. If you’re taking a career break to care for a loved one who isn’t a child, you may still be able to get National Insurance credits – for example, if you’re getting Carer’s Allowance payments. You can check if you’re eligible for National Insurance credits and find out whether you need to apply for them on GOV.UK. There may be situations where you’re not paying National Insurance or getting National Insurance credits (for example, if you’re not working and not claiming benefits) so it could be worth looking into making voluntary National Insurance contributions.”
3. Check if you can get any other support
“It could be worthwhile checking if you’re eligible for any other benefits or financial support if you’re taking time out of work to look after family. Any extra money you can get could help you out in the here and now and it might even free up some money for you to put away for your future.”
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