Question: I’m in my early 30s and expecting
my first child. I plan to take a career break for a few years after maternity leave to focus on our family.
I’ve been paying into my company pension since I started working, but I’m worried about how this break might affect my retirement savings. I’m wondering will taking a few years out make a big difference to my pension in the long run, and is there anything I can do now to reduce the impact in the future?
Answer: Taking time out of the workforce to start or raise a family is one of life’s big personal decisions. From a financial planning perspective, it can have long-term implications, particularly for your pension. But with some sensible preparation and small, deliberate actions, the impact can be managed.
Let’s start with the basics. When you’re not earning, you’re usually not contributing to your pension. Those missed contributions, and the compound growth they would have generated, are what create the ‘pension gap’ for people who take career breaks. The earlier in your career this happens, the more time those missing contributions would otherwise have had to grow.
For example, if you were contributing €400 a month to your company pension (including your employer’s contribution), that’s €4,800 a year. Over three years, that’s €14,400 of missed contributions. But the real impact is not the €14,400, it’s the growth that money could have earned over the next 30-plus years. Using a conservative 4% growth assumption, that gap could translate into roughly €45,000 less in your retirement pot at 65.
That’s the bad news. A positive is that pensions are flexible and there are several ways to reduce the long-term effect.
Option 1: keep it going
If possible, consider continuing a small personal pension contribution while you’re on your career break. Even €100 a month into a Personal Retirement Savings Account (PRSA) keeps your retirement savings habit alive and benefits from compounding. You may not get tax relief if you have no taxable income in that period, but maintaining momentum can still be worthwhile.
If you’re taking unpaid leave but still technically employed, check whether your employer allows pension contributions to continue. Some employers will continue theirs for a period, particularly in the public sector or larger multinationals.
Option 2: top up later
Once you return to work, you can make Additional Voluntary Contributions (AVCs) or increase your pension contributions to catch up. Revenue limits for pension tax relief increase with age, meaning you can contribute a higher percentage of your income in your 40s and 50s and still receive tax relief. This flexibility allows you to repair some of the ground lost during your break.
For instance, if you resume work at 35 and increase your pension contribution by just 2% of salary, you could potentially make up for several years of missed contributions by your mid-50s. The earlier you make that adjustment, the easier it is.
Option 3: State Pension
If your career break means stepping out of the PRSI system, that can affect your State Pension entitlements later. To qualify for the full State Pension (Contributory), you currently need an average of 40 PRSI contributions per year over your working life.
The good news is that home caring periods can help fill some of those gaps. Parents who take time out to care for children under 12 can get credited contributions (up to 20 years’ worth) towards their State Pension record. It’s worth confirming your PRSI record and checking that you’re being credited correctly online on mywelfare.ie.
Option 4: review
A career break often means a reduced household income, so it’s wise to revisit your financial protections and savings. Check your life cover, review your household budget, and make sure your pension fund’s investment mix still suits your time horizon and risk comfort.
Stepping back for family reasons shouldn’t be viewed as a financial setback. It’s a trade-off – one that millions of people make willingly. The key is to go into it with a good plan.
Missed years matter: even short breaks can reduce your eventual pension pot due to lost growth.Keep contributing if possible: small ongoing payments still build long-term value.Catch up later: use AVCs or higher future contributions to fill gaps.Protect your State Pension: claim homecaring credits for time spent caring for children under 12 years.Stay engaged: keep track of your pension statements and review your plan when you return to work.
Martin Glennon, Head of Financial Planning.
Martin Glennon is head of financial planning at ifac, the professional services firm for farming, food and agribusiness.
Question: I’m in my early 30s and expecting
my first child. I plan to take a career break for a few years after maternity leave to focus on our family.
I’ve been paying into my company pension since I started working, but I’m worried about how this break might affect my retirement savings. I’m wondering will taking a few years out make a big difference to my pension in the long run, and is there anything I can do now to reduce the impact in the future?
Answer: Taking time out of the workforce to start or raise a family is one of life’s big personal decisions. From a financial planning perspective, it can have long-term implications, particularly for your pension. But with some sensible preparation and small, deliberate actions, the impact can be managed.
Let’s start with the basics. When you’re not earning, you’re usually not contributing to your pension. Those missed contributions, and the compound growth they would have generated, are what create the ‘pension gap’ for people who take career breaks. The earlier in your career this happens, the more time those missing contributions would otherwise have had to grow.
For example, if you were contributing €400 a month to your company pension (including your employer’s contribution), that’s €4,800 a year. Over three years, that’s €14,400 of missed contributions. But the real impact is not the €14,400, it’s the growth that money could have earned over the next 30-plus years. Using a conservative 4% growth assumption, that gap could translate into roughly €45,000 less in your retirement pot at 65.
That’s the bad news. A positive is that pensions are flexible and there are several ways to reduce the long-term effect.
Option 1: keep it going
If possible, consider continuing a small personal pension contribution while you’re on your career break. Even €100 a month into a Personal Retirement Savings Account (PRSA) keeps your retirement savings habit alive and benefits from compounding. You may not get tax relief if you have no taxable income in that period, but maintaining momentum can still be worthwhile.
If you’re taking unpaid leave but still technically employed, check whether your employer allows pension contributions to continue. Some employers will continue theirs for a period, particularly in the public sector or larger multinationals.
Option 2: top up later
Once you return to work, you can make Additional Voluntary Contributions (AVCs) or increase your pension contributions to catch up. Revenue limits for pension tax relief increase with age, meaning you can contribute a higher percentage of your income in your 40s and 50s and still receive tax relief. This flexibility allows you to repair some of the ground lost during your break.
For instance, if you resume work at 35 and increase your pension contribution by just 2% of salary, you could potentially make up for several years of missed contributions by your mid-50s. The earlier you make that adjustment, the easier it is.
Option 3: State Pension
If your career break means stepping out of the PRSI system, that can affect your State Pension entitlements later. To qualify for the full State Pension (Contributory), you currently need an average of 40 PRSI contributions per year over your working life.
The good news is that home caring periods can help fill some of those gaps. Parents who take time out to care for children under 12 can get credited contributions (up to 20 years’ worth) towards their State Pension record. It’s worth confirming your PRSI record and checking that you’re being credited correctly online on mywelfare.ie.
Option 4: review
A career break often means a reduced household income, so it’s wise to revisit your financial protections and savings. Check your life cover, review your household budget, and make sure your pension fund’s investment mix still suits your time horizon and risk comfort.
Stepping back for family reasons shouldn’t be viewed as a financial setback. It’s a trade-off – one that millions of people make willingly. The key is to go into it with a good plan.
Missed years matter: even short breaks can reduce your eventual pension pot due to lost growth.Keep contributing if possible: small ongoing payments still build long-term value.Catch up later: use AVCs or higher future contributions to fill gaps.Protect your State Pension: claim homecaring credits for time spent caring for children under 12 years.Stay engaged: keep track of your pension statements and review your plan when you return to work.
Martin Glennon, Head of Financial Planning.
Martin Glennon is head of financial planning at ifac, the professional services firm for farming, food and agribusiness.
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