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A new report from PensionBee estimates the impact of the care gap on pensions, which it says could affect as many as two in three workers.
Two in three people are likely to take time out to provide unpaid care at some point during their working life, according to a new report.
The report, The Carer’s Pension Gap, from PensionBee highlights the extent of unpaid care in the UK and how it affects people’s retirement savings.
PensionBee identifies key moments when people are most likely to need to take time
out of work to provide care. These are taking care of children (48% of people who said
they had to take time out of work to care), followed by looking after parents (30%), a
partner (21%) and grandparents (15%). Just 5% reported having to look after
grandchildren, although this rises to 19% of carers aged between 55 and 64. Three of
the five key care moments are most likely to occur in someone’s late 50s or early 60s, in the build-up to retirement.
Although by no means all carers have to take time out of work for caring responsibilities, PensionBee estimates that for every year spent out of work to perform unpaid care, a pension pot is roughly £5,000 lower at retirement, while every year spent working part time (three days a week) is roughly £2,000 lower.
For someone who needs to provide unpaid care at all five key life moments, PensionBee estimates their pension pot could be almost £30,000 less at retirement.
This Carer’s Pension Gap is the difference between a pot size of £222,000 at age 67
and one worth £193,000 at the same age, according to PensionBee. This assumes two years out of paid work to look after children, plus an extra year each (four in total) for caring for grandparents, parents, grandchildren and a partner at other critical moments through working life.
PensionBee says that, after taking a 25% tax-free lump sum, someone facing the Carer’s Pension Gap could receive a retirement income of approximately £12,222 per year with the larger £222,000 pot, compared to an annual income of roughly £10,582 with the smaller pot of £193,000.
PensionBee says the findings show that someone who has taken time out of work to care can expect a basic standard of living in retirement, with an annual income of approximately £20,000 including a full State Pension and annuity at today’s rates. This falls slightly short of the £23,000 that the Pensions and Lifetime Savings Association recommends for a moderate standard of living in retirement.
Becky O’Connor, Director (VP) Public Affairs of PensionBee, says: “[This is] not a niche problem – nor is it necessarily gendered – although currently, women are more likely to face the consequences of the biggest gap: the childcare gap. Besides the pension gap caused by childcare, it’s clear there is a strong case to give attention to the impact of the multiple care moments faced by people in their late fifties and early sixties.
“As the Government looks to address the labour shortage, particularly among older
people who have left the workforce early, it’s imperative to find a solution that prevents people from missing out on key working years to avoid a pension shortfall in retirement.”