I Took A Four-year Career Break To Raise Kids – I Lost £130,000 Of Pension Savings

When Sara Bell became a mother, she went from earning £145,000 a year in a high-flying finance job to becoming financially dependent on her husband.

She took four years out of work in total while having her three children, and it has left her thousands of pounds worse off.

“My husband [at the time] believed I had to out-earn him for it to make sense for us for him to stay at home”, says Sara, 57, who now lives in Sydney, Australia. “It wasn’t something that we’d ever discussed before we had children and it came as a shock.”

Taking four years out of work means that Sara’s pension pot is about £130,000 smaller than it would have been had she worked throughout this time, according to number-crunching by AJ Bell, the wealth manager.

This assumes she contributed 5 per cent of her salary and her investments grew by 5 per cent a year.

Sara was working for Credit Suisse in Hong Kong when she met Matthew (whose name has been changed) on a work trip to Singapore in the late 1990s. When their daughter was born in 2001, she took just eight weeks off before returning to work.

“Six weeks is the normal maternity leave in Singapore,” says Sara. “I carried on working until my bonus of £30,000 was paid in 2002, then quit to study for a Masters Degree in Environmental Management and be with my daughter. At the time, I didn’t really think about my financial situation.”

When their second child, a son, was born in 2003, the family moved back to the UK, to Hampstead, north London, and a second son followed in 2005.

With three young children, Sara continued not working and found herself financially dependent on her husband. It was only when they split up in 2006 that she started to understand the financial implications of this.

“I thought I was young enough to not have to worry about it,” says Sara, who has written a book, It Starts With You. “I didn’t consider that if you don’t work for a serious amount of time, you end up without pension contributions from that period, and it’s actually very challenging to get them back.”

Today, Sara has around £26,000 saved into her pension. But she isn’t worried just yet. “Right now, I’m focusing on building up my marketing business,” she says. “I expect to work for many more years. But because I genuinely love what I do, that doesn’t feel like a burden. It feels like a privilege.”

However, if she could go back and give her younger self some advice, it would be to talk more about finances with her partner before having children.

“You need to discuss how that’s going to work before you have children because otherwise the power balance in the relationship shifts in a way that’s really awful for women,” she says.

How does a career break impact your finances?

The financial impact of having children is huge – and it is something that typically affects women to a greater extent, as they still tend to do most of the childcare.

Surprisingly, women actually tend to earn slightly more than men when they start working life, aged 16 and 17, according to data from the Office for National Statistics.

However, by the time they reach their mid-twenties, men have started to edge ahead, with an average pay gap of 0.9 per cent. By their 50s, the difference in pay between genders is 12.5 per cent.

This gap really starts to widen around the time of having children. This is usually when women take a career break, and many return to part-time rather than full-time work.

But the impact isn’t just on salaries – it also affects long-term wealth, with lower pension contributions and, ultimately, a smaller retirement savings pot.

For a 30-year-old woman on an average wage, taking a five-year career break and then returning to work three days a week could mean losing out on £243,950 in pension wealth, according to Interactive Investor. For a higher earner, the loss could be as much as £422,495.

For Sara, a career break meant missing out on almost £130,000 of pension wealth.

If she had contributed 5 per cent of her £145,000 salary to her pension, that would be £7,250 a year and £29,000 over her four-year break. If this had grown at an annual rate of 5 per cent for 30 years, it could be worth £129,565. In reality it could be even more, as this does not factor in any employer contributions.

Camilla Esmund, head of investor campaigns at Interactive Investor, said: “Taking time out of work for childcare or caring has a knock-on impact: it changes our earnings and our contribution patterns to pensions.

“Plus, the UK has some of the highest childcare costs in Europe, putting a further strain on our finances, meaning women are often making sacrifices that impact their ability to build long-term wealth.”

What can you do about it?

Couples should talk about finances before having children. Consider how you will fund maternity leave, whether there is an option for shared parental leave and how this could impact you both long-term.

You may not know how you’ll feel about wanting to return to work, but it’s useful to discuss the options.

If you can afford to, choose not to pause or reduce your pension contributions while on maternity leave, says Sarah Coles, head of personal finance at AJ Bell.

“If you can keep up payments, you only have to pay a percentage of the actual maternity pay you’re getting, while your employer needs to keep making the same contributions as before, so you get far more bang for your buck,” she explains.

Don’t forget that if one partner takes time out of work, the other can pay into their pension on their behalf. Non-earners can contribute £2,880 a year to a pension, which is topped up to £3,600 through tax relief, helping couples continue saving and level the financial playing field.

Those returning to work after a career break could consider raising their contributions if it is affordable to try and make up for lost time.

It’s also worth reassessing your retirement savings and making a plan. Start by finding any lost pensions, says Esmund: “It’s easy to lose track of old pensions, but rounding these up can be a great way to make you feel more in control – and doesn’t need any extra funding.”