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Last Updated: Monday, 16 September, 2002, 11:01 GMT 12:01 UK
Career break women
Christine Ross

While both men and women may have career breaks, it is still much more common for the woman to give up work, even for just a few years.

So if you're pregnant, or have stopped work to bring up a family, personal finance expert Christine Ross from SG Hambros, has some tips for getting your financial house in order.

At the very least having a baby entails maternity leave.

For most women returning to work after maternity leave, it's business as usual, because the majority of occupational benefits should remain intact.

Most employers provide continued membership of the pension scheme, and will continue to fund life and sickness insurance if these benefits are part of the usual pay package.

And there are some employers who will hold open a job vacancy, often for as long as five years, for employees choosing not to return to work immediately after having a baby.

In these cases it is usual that all benefits cease during the career break.

Longer breaks

If you're taking a longer break or have not had the chance to join an occupational scheme, you'll be reassured to know that you should still qualify for a state pension.

So what does the state provide?

The basic state pension for a single person is currently 75.50 per week.

Eligibility for a state pension is based on an individual's national insurance (NI) contributions.

You need to have sufficient NI credits to qualify for a state pension in your own right.

Good news

The good news for mothers who stay at home is that you qualify for "free" credits while you are receiving child benefit but not working.

The same applies to someone who cares for a person receiving attendance allowance.

Until 1978, a married woman who went to work could elect to pay a reduced level of NI.

By doing this, she gave up any entitlement to a state pension of her own.

Instead, when her husband reached state pension age, they would receive the state pension at the married couple's level.

Currently the basic state pension of 75.50 is topped up by an additonal 42.50 per week.


A recent change in the pension rules, (April 2001) now makes it possible for non-working individuals, male or female, to contribute to a personal pension, and receive tax relief at the basic rate, even if they are not taxpayers.

These rules were introduced in conjunction with the launch of stakeholder pensions.

There is now a maximum "non-earnings related" contribution level of 3,600 a year.

Prior to this, women who gave up work complained that even if, as a couple, they could afford to make contributions to the female partner's pension, they were prevented from doing so.

Now, a 3,600 gross contribution costs 2,808 after tax relief - an immediate contribution of 792 from the taxman.

Alternatively, someone who has been working can contribute to a personal pension based on their salary at the time of leaving for up to five years.

For example, take a woman who, immediately prior to giving up work had been earning 25,000 and was under 36 years of age.

She would be allowed to contribute 17.5% of her salary to a personal pension, which is 4,375 for a further five years.

If her salary was 15,000, her maximum earnings-related contribution would be 2,625.

She would have the choice of paying this amount, or any amount up to the non-earnings related limit of 3,600 pa.

Be independent

Remember that even if you're depending on your partner to provide for you in your old age, it's important to make your own independent provision.

For your personal security (not all marriages are for life), and for your financial health (you can use up your personal tax allowance, especially if your partner is a higher rate taxpayer), having your own pension makes sense.

To obtain a state pension forecast you can get Form BR19 from your social security office or some major post offices.

If you fill in the details and send this off you'll get a pension forecast generated which arrives after about eight weeks.


Once you're back in work, the priority is to find out about and join the company pension.

Hopefully your employer will provide a contribution to that scheme, but if there's no scheme or you're self-employed, then a stakeholder pension could be the best option.

The stakeholder pension is also a good option if you're returning to work part time or your salary is under 30,000, and can complement your occupational scheme.

An added attraction with a stakeholder is that you can take part of the final pension as a cash lump sum.

Big flaw

But, there is one big flaw with conventional pensions: it is not possible to draw any money out until at least age 50.

This does not suit everyone, especially where having to stop work again for family reasons or through redundancy is a possibility.

Pensions are ideal for long term savings that can be left alone, and are popular because of the relatively generous tax breaks they offer.

But there are other options.

More flexibility

At the end of the day, the objective is to build up a pot of money for later on, that can provide a regular income when it is needed.

An Isa, which is really just a tax-free savings plan that can invest in cash and/or shares, provides more flexibility.

There is no upfront contribution from the taxman, but there is no tax on the money that comes out at the other end either (pensions are taxable in payment).

More importantly, money can be accessed freely if required.


The best way to decide how much you should be saving is to set your target.

For example, let's say you want to build up a sum of 50,000 in 25 years' time.

You need take a view regarding the rate of investment return.

At present, cash deposits will earn about 4%, while over the next five years many predict that stockmarket returns could average 8% per year.

Let's take an average long term growth rate of 7%, because in the longer term interest rates may rise.

Putting these figures together, to achieve a pot of money of 50,000 over 25 years, with a 7% growth rate (and allowing 0.5% per year for investment charges), you would need to save 68 per month.

This may not be affordable now, but at least you know what the target is.

Also, the growth rate is just a prediction, so it is important to review each year just what has been achieved, and to reset the target accordingly,

There are various websites that provide this type of calculator, such as the unit trust at Isa provider Fidelity, www.fidelity.co.uk


One word or warning - 50,000 will not have the same buying power in 25 years' time as it does today, so you need to take this into account.

One way to help combat this is to increase your savings each year in line with inflation.

There is no magic answer to saving, and for women there are added hurdles.

The key points to remember are:

  • It's never too early to start - perhaps BEFORE you have a career break
  • Saving for retirement need not mean a pension
  • Use a savings scheme that suits you - you might need to easy access to your money
  • Make use of tax breaks

    Pensions Palaver
    06 Sep 02  |  Working Lunch


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