“Start early when it comes to saving – it’s an adage spouted by many and its importance shouldn’t be underestimated. But for some it is even more important, including women and anyone who may take a career break. Women, in particular, generally have two additional elements that make it of vital importance that they benefit from the magic compounding interest – often they take time out to take care of loved ones and they live longer.
“The proposal from the Social Market Foundation has merit as carers are the unsung cogs that keep the wheel of society moving. However, they do so at a cost to their own wellbeing including their financial wellbeing which has long term lasting impacts and could prohibit their own ability to have a secure retirement.
“A career break can have a substantial impact on your pension pot. For instance if you are auto-enrolled on a salary of £45,000 from when you are 22, with a retirement age of 55 and you take a 2 year career break at 35 you will end up with 6% less in retirement than if you hadn’t taken a break.
“However, with pensions already costing the government somewhat incomprehensible sums of money it is unlikely they can deliver this proposal across the board. However, there is scope to make the provisions for those providing care of an elderly relative fairer, an area where previous governments have fallen well short in.
“For example, if you formally register as a carer for someone you can get some benefits and NI credits toward the state pension but it is nowhere near satisfactory. When we eventually get some form of social care policy from the government, it needs to address this issue head on. The current system in some ways levies a ‘dementia tax’ on those who are caring for someone with the debilitating condition, and can have an enormous impact on their ability to earn and thus their ability to save for their own later life.
“A good financial planner can help you work out the best way to mitigate the impact of caring duties. For instance it may be both tax efficient and responsible for the working partner to fund their partner’s pension.”