The cost of career breaks for teachers

Oonagh Morrison, Regional Manager from Wesleyan Financial Services, highlights why pension gaps are still a problem for women and looks at ways to mitigate these gaps.

Why are pension gaps still more of a problem for women?

Although we are seeing many changes within society and the number of stay-at-home fathers has risen in recent times, the reality is that the majority of primary carers of young children are still women.

Mothers however, don’t merely take time out to have a baby. More often than not, there is a need to adjust their hours when their children are toddlers and during the pre-school years. Ultimately, these years spent with adjustments to their full-time work to raise their children have an impact on their pension contributions.

What maternity rights do teachers have?

The UK Government statutory maternity leave and pay scheme sets out a minimum floor of rights which can be enhanced – but not reduced – by your employer. Currently the entitlement is 52 weeks’ Statutory Maternity Leave, made up of 26 weeks’ Ordinary Maternity Leave and 26 weeks’ Additional Maternity Leave. Further details can be found here.

If a teacher extends their maternity leave beyond their entitlement, they could easily find themselves in a situation where they have no monthly salary, no government assistance and no ability to fund their pension while off work raising young children.

When it comes to choosing between raising toddlers and young children or maintaining or building on a career, many mothers are ultimately faced with difficult choices.

Once their maternity leave comes to an end, mothers essentially have three options. One is to take a break from their career and stay home to dedicate their time to raising their children, should they be fortunate enough for this scenario to be financially viable. The downside is during this break, the mother will not be paying into her Teachers’ Pension Scheme (TPS). This subsequently creates a gap in the pension which, unless bridged in some form, will ultimately impact her income during retirement.

Another option is to return to work part time, enabling the mother to spend more time with her child/children whilst earning an income and contributing towards her workplace pension. The disadvantage here of course, is that the income and pension contributions will be reduced. Unless there is a strong family support network, additional childcare arrangements will likely be required, and any additional costs will also have to factored into monthly outgoings.

The third option is for the mother to return to work full-time. The full-time hours will of course be reflected in the salary and pension contributions, but realistically, how viable is this option for teachers?

Teaching is a notoriously demanding profession. It can be difficult for women returning from a maternity break to return to the level of responsibility they'd previously had, due to trying to juggle the demands and responsibilities of parenting young children with the demands of the profession.

Whilst many female teachers understand there is a financial trade-off for this time, when raising their children, it can still cause concerns about the long-term future. Questions that I was frequently asked by female teachers who had taken career breaks or were working part time, were, ‘What has this done to my pension?” or “How much have I lost, and how can I make up for the shortfall?”

If you are taking time out to raise a family, how can you mitigate gaps in your pension?

Many of my female clients asked if it would be possible to pay into their pension while off work. Whilst you are on statutory maternity leave, you are still contributing towards your pension. However, as soon as this period of time ends, if you don’t return to work - be it full time or on reduced hours - you cannot pay into the TPS. If you have no earnings at this point, you will also be restricted on how much you can pay into a personal pension which is at present, ￡3,600 gross per annum.

To start to mitigate any pension gaps, there are essentially three options. To determine which option would be best suited, the first step would be to assess how much has been or will be lost, due to the career gap. This all comes down to time.

For example, someone who was a teacher in continuous service for 35 years is going to have a greater pension than someone who had three children with three sets of career breaks, and any variations of contract that resulted from parenting responsibilities. An adviser can help to assess how much you will need to bridge any pension gaps and to put you in an informed position to determine the best approach.

Buy additional pension through the TPS

The first possible option is the ability to buy additional pension through the TPS when you return to work. This is a structured income option and buys valuable income guarantees but can prove expensive to cover the cost of, particularly later in life with less time to cover that cost.

Personal pensions

The second option would be to fund a personal pension to generate additional retirement assets, and use that as an income generator or capital source to try to bridge the gap.

Savings

The other alternative is to save, although this won’t benefit from the valuable tax relief of a pension plan. By using a cash ISA for example, it is possible to build up a pot of money and then to draw from that pot as and when is needed.

Specialist support

When starting a family, it is an unfortunate reality that the majority of working mothers will invariably take a hit to their earnings and pension contributions in some shape or form, putting them at a financial disadvantage.

With careful planning, there are ways to help mitigate this. The right option will depend entirely on your individual circumstances – there is no one size fits all when it comes to financial planning. A specialist financial adviser can offer useful support by looking at your situation as a whole and helping you to understand your options so that you are in a position to make well-informed decisions for your future.

If you would like support or guidance on understanding your financial position, speak to a Specialist Financial Adviser at Wesleyan Financial Service. Charges may apply. You will not be charged until you have agreed the services you require and the associated costs.