Preparing for the birth of a baby is an exciting and busy time, and it would be easy to understand if your pension was not top priority. However, it is important to consider the impact of having a family on your retirement pot. Here is a checklist to help make sure you stay on the right financial track.
The state pension
You'll need sufficient National Insurance contributions (NICs) to qualify for the full amount. However, time taken off work to raise a family can put a big dent in this record, particularly if you have several children. So, review your entitlement to the state pension by getting a state pension forecast, available here from the gov.uk website.
If you become entitled to Child Benefit and the child is under 12, you may also be entitled to apply for Class 3 National Insurance Credits to boost your entitlement to the eventual state pension. See gov.uk for more details.
Ask your employer
If your employer is paying into a pension scheme on your behalf, will these contributions continue during your maternity leave? Your employment contract should give details of this. If not, ask if you can make up any personal contributions that are missed as a result of your maternity leave.
Here is more information about what pension rights are available when considering maternity leave under the two types of employer pension schemes:
1. Money Purchase: Your employer may continue to pay the same contributions based on your normal pay, but check with them what their policy is. However, you could end up paying reduced contributions to the scheme based on your level of maternity pay, resulting in a smaller eventual pension fund – you might want to consider topping this up.
2. Final Salary: You should build up your pension as normal while you are on paid maternity leave, but only paying contributions calculated on the maternity pay you receive from your employer.
3. Unpaid maternity leave: If your employment contract states that your maternity leave is unpaid, neither you nor your employer are required to pay into your pension. However, any time worked before or after this time would count towards your pension. Many employers will be more generous than this so, again, check your contract of employment and discuss your situation with them.
Review direct debits on personal pensions
'Women on average retire with smaller incomes than men, due to taking career breaks to have children, or working part-time,' says Nicola Downs from IFA adviser Trentham Invest. 'So on maternity leave, if finances allow, contributions to a personal pension scheme should be continued. However, make sure that they are less than £3,600 a year to avoid over-contributing.'
Raising a big family
If you take a longer break from work to look after several children, make sure you continue saving for retirement, whether that's by contributing to a pension, subscribing to an ISA or using some other savings vehicle, provided you can afford it. There are various ways to save, so take advantage of them.
Review life insurance and sick pay benefits
What would happen if something happened to the breadwinner in the family while you were on maternity leave? You might want to reconsider your family's life cover and other insurance options to make sure you'd be covered should the worst happen.