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Statistically, the parent who stays at home and looks after the children – mum or dad – is the least likely to save for retirement. So, if you’re about to make that leap you need to consider your retirement spending now, as much as babygros and saving for your child’s university fees. Figures from 2015 show that there are now around 2 million stay at home mums in the UK, down from 3 million in 1993. The number of men who now stay at home with the kids has risen although still not to equal numbers. There are now 111,000+ stay at home dads, as opposed to 235,000 in 1993. The shifts in these numbers show that more and more people are choosing (or having) to work but what happens if you don’t? Most UK workers will now find themselves part of a pension scheme but for those who stay at home there’s no such thing. So how can you ensure you have some pension provision if you’re a stay at home parent?
Although the state pension is likely to be barely enough for most people to survive on in retirement it’s worth making sure that you have one. Years at home parenting still qualify towards a state pension. National Insurance credits are due to every stay at home parent, as long as they are registered for child benefit and the youngest child is under 12 years old. Remember that you need 35 years of National Insurance credits to qualify for the full state pension when you retire. You need at least 10 years of credits to qualify for any pension at all.
If you’re on maternity or paternity leave – any kind of leave that has an end date on which you go back to work – your employer should continue making payments into your workplace pension. This obligation on the employer lasts for at least 39 weeks and may be extended over a longer period of time. If the workplace pension you have is a group personal pension then you can also make ongoing payments into your pension while on leave. Remember that it’s quite easy to lose track of pensions if you’ve moved jobs so try to keep clear records or consider consolidating your workplace pensions into one.
There is a school of thought that if you’ve given up a career to care for children your partner might want to contribute to a pension scheme for you. For some couples it’s workable – and feels fair – for the working partner to contribute to the pension of the person who has taken on the childcare responsibilities. For others, this may not work but it’s always worth considering.
If you don’t have a workplace pension to fall back on, the most obvious alternative is to open your own private pension plan. There are no specific pensions designed for stay at home parents and it can be a complex area for even the most financially minded. The key is to find a pension plan that has the level of investment risk that you’re comfortable with. Remember that when you take money out of a private pension you’ll need to be prepared to pay tax on it as income.
The LISA is an attractive prospect for anyone, as it has the benefit of being tax-free i.e. no tax to pay when you withdraw the savings to use them. The LISA is a new 2017 tax free savings scheme that was designed to help the under 40s either save for retirement or put money aside to buy a property. The key requirement is that you’re under 40 on the 6 April in the year you want to open the LISA. For every £4 that you put into the LISA the government will add another £1 – up to £4,000 a year is eligible for the 25% bonus. It’s worth noting that if you try to access the cash in your LISA under the age of 60 then – if it’s not to make a property purchase – you are hit with a 25% charge. After 60 the money is yours to spend as you like.
There are many people in the UK who won’t have enough pension provision for retirement. From those who won’t have enough credits for a full state pension, to those without any personal pension provision at all, retirement could be tough for many. Stay at home parents have the same options as these others – to start putting money aside in the schemes above or to begin looking at other retirement options. Investing in property, other types of ISAs, high interest savings accounts and putting your cash into an investment stocks and shares portfolio might all be options to consider, depending in income and expertise.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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