• Donald P McKenna

Is my pension impacted by a career break?

I took a career break after my last maternity leave a few years ago and I’m back working full time. But I’m now worried about the impact on my pension – what can I do?


There are several reasons that many women find that their pension income when they retire is not always what they expect. Obviously taking all the usual factors like, when they started it, where it’s investment and how long they have been contributing into account, can have an impact. However, there are also a few other reasons, which tend to apply mainly to women, that can have a dramatic impact on a pension fund. This gender pension gap can be as much as 20% - 25% for a variety of reasons.


Gender pay gap

Part of it stems back to the gender pay gap. It’s long been known that there is a gender pay gap, not just in Ireland but globally. Most recent reports put this at a figure of just under 25% in Ireland. This is the percentage difference between what men and women are paid on average in an organisation, irrespective of roles or levels. This can obviously impact a pension from the perspective of the percentage of income that is put into a fund and the tax-free rates that apply.





Women live longer than men

The simple fact that women live longer than men. Typically, this is 6 – 8 years longer with male life expectancy averaging 76 years and women 82 years. For a woman retiring at 65, that’s just under 20 years that a pension must provide a replacement income for. The bottom line is that women need a larger pension pot as it needs to provide income for a longer period of time.


Career breaks


And now to the question in hand and the third reason that women may find there is a gender pension gap. Many people take career breaks, whether to raise a family, care for a relative or simply to reassess their life. However, women tend to be the primary care givers for children and aging family members, so these career breaks have most impact on both their salary, as well as on their pension in the future. An individual’s entitlements to pension during these breaks in service depend on the nature of the break and the terms of the pension arrangement you have in place.


Connected to career breaks is the impact that these have on future earnings. It is estimated that taking 1-2 years out of the workforce can decrease pension earnings by 14%. This jumps to 50% for an absence of over 3 years. Combined with the fact that many people also may opt to decide to return on reduced hours, even in the short term, there are many factors contributing to a negative impact on a woman’s pension.


So, what can we do to address this imbalance?

Remember for everyone when planning for retirement, the fundamentals remain the same. Start as early as you can, save an adequate amount regularly and invest it wisely.

Then taking the reality of the situations above, a woman needs to take these into account when addressing her pension needs. This requires additional pension contributions to meet the income needs in retirement. How much these need to be and whether they can be managed on a regular or additional voluntary contribution (AVC) arrangement, depends on what the estimated shortfall is and the nature of the contributing factor.


Once these are defined a suitable solution can be put into place.


Pension and retirement planning does not have to be complicated. That’s why we are here to help. Just contact us and we’ll be happy to discuss your individual situation.

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