How career breaks can cost your pension £158,000

Laura Suter
16 November 2021

•    A five-year career break cuts your pension pot by more than £65,000
•    Two, year-long breaks plus working three days a week costs £158,000
•    Just two year-long breaks leaves a £26,000 hole in your pension
•    Five tips to help close the pension gap while on maternity leave

Laura Suter, head of personal finance at AJ Bell, comments: 

“The biggest contributor to the colossal gender investment gap in the UK is pensions – men have far more stashed away for their retirement than women. Our research* shows the average man has £55,000 in their pension pot compared to £19,000 for women – a £36,000 gap. These figures cover all ages and as we get older this gap widens, as compounding investment returns fast-track men’s pot size.

“One of the big reasons that women have a smaller pension than men is the impact career gaps have on their retirement saving. A break from working for even a year can leave you almost £14,000 worse off in retirement, assuming you cut your pension contributions in that time. But the effect of career gaps can rapidly add up, with a five-year break costing you more than £65,000 when you come to retire at the age of 65. 

“Part-time working also has a crippling effect on your pension, as most people maintain the same percentage contribution of their pension despite earning a lower salary – meaning less is going into your pension in pounds and pence. If someone takes a five-year break and then works four days a week forever, their pension will be more than £123,000 lower than if they took no career breaks – a 25% reduction in their pension.

“If someone took a smaller career gap – so two year-long breaks, but then worked three days a week for the rest of their career, they’d end up almost £158,000 poorer in retirement. This is a significant difference when you think about how that money could be spent or how long it could last in retirement.

“Part of the issue is that typically women take career breaks in their 30s and the money contributed to their pension during that time would have up to 35 years to grow and compound during that time, which amplifies the effect of any breaks in their pension contributions. 

“But many women also see cutting pension contributions as an easy money-saving measure when they’re on maternity leave or working part-time, without thinking about the long-term implications this short-term move can have. It’s important to factor in the real cost of cutting contributions before you do it.”


Pensions pot at age 65


No career breaks



One, year-long break



Two, year-long breaks



A five-year break



Two, year-long breaks plus part-time work* until eldest is school age



A five-year break, plus working four days a week forever



Two, year-long breaks plus part-time work* forever



Source: AJ Bell.  Calculations assume 5% pension contribution from employee, plus 5% from employer, plus tax relief, starting at age 22 on the average salary for that age, increasing by 2% a year, and based on a 4% return each year. * Part-time work refers to working three days a week.

How can we close the pensions gap while on maternity leave?

1.    Work out your rights: 
“Make sure you include pensions as part of your discussions with HR when you’re organising your maternity leave. Ask what your company provides, as they may include enhanced pension contributions as part of their maternity package, and check what rate you’re currently paying in. See if you can increase your contribution before you go off, to try to shore up the pot before you take time off, or boost your contribution when you return to help make up any shortfall. 

2.    Don’t automatically cancel your pension contributions:
“Many people who near maternity leave will be able to change their pension contributions or cancel them altogether, as it will be deemed a “lifestyle event” for most schemes. It’s understandable that it seems like any easy money-saving move when your finances are going to be pinched, but don’t automatically assume it’s best to make the cut, as the effects can quickly ramp up and last a long time.”

3.    Work out how much it will cost you: 
“If you’re taking a break to have children you’ll pay pension contributions based on your maternity salary, rather than your pre-maternity pay. This means that if you pay in the same percentage contribution but it’s based on a lower salary, you’ll be putting less away. This has two sides: on the one hand it may take less out of your pay each month than you think and mean you don’t have to cut your contributions, but on the other, you may need to work out a way to make up the shortfall if you return to work.”

4.    Talk frankly with you partner about your finances: 
“Before you go on any career break you’ve got a lot to think about, but make sure that if you have a partner, you talk about the nitty gritty of how both your finances will work while one or both of you are off work. As part of this you could agree to continue your pension contributions, with them subsidising the cost, or agree to put more money into your pension ahead of your leave.”

5.    And finally, get the right pension credits: 
“If you decide to take a career break then make sure that you claim child benefit. You can claim it from when your child is born and, as well as paying you £1,0100 a year for your first child, you’ll also get valuable National Insurance credits from the Government that will help you to build up your state pension. If your partner earns more than £50,000 you will have to pay some of the child benefit back, but it’s still worth claiming as you’ll get the National Insurance credits.”

AJ Bell Money Matters is a new resource to help women take control of their investments and close the £1.65 trillion gender investment gap.  Follow us via our website, podcast or Instagram. 

*An independent survey of 5,000 UK adults conducted for the AJ Bell Money Matters campaign by Opinium between 26 and 30 August 2021.

Laura Suter
Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

Follow us: