The financial impact of being an unpaid carer

Unpaid carers typically have a pension pot that’s around £5,000 less for every year taken out of work to provide care, while every year spent working part-time (three days a week) amounts to a pot that’s roughly £2,000 lower, according to PensionBee’s calculations.

This Carer’s Pension Gap, according to PensionBee, potentially means the difference between a pot size of £222,000 at age 67 and one worth £193,000 at the same age. This assumes two years are taken out of paid work to look after children, plus an extra year each (four in total) caring for grandparents, parents, grandchildren and a partner.

These calculations are based on an average starting salary of £25,000 at age 21, 8% pension contributions a year, annual charges at 0.7%, salary growth of 2% a year and investment growth of 2.5% a year.

After taking a 25% tax-free lump sum, someone facing the Carer’s Pension Gap could expect to receive a retirement income of approximately £12,222 per year with a £222,000 pot at age 67, based on current annuity rates, compared to an annual income of roughly £10,582 if they have the smaller pot of £193,00.

Once the full State Pension is factored in (currently £10,600 a year), 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. This is considerably less than the £31,300 that the Pensions and Lifetime Savings Association (PLSA) recommends for a moderate standard of living in retirement. Read more in our article How much should I save for retirement?

Becky O’Connor, director of public affairs at PensionBee, said: “We are a nation of carers. Millions of workers; both male and female, old and young, are filling the gaps created by a lack of social care support, at great personal cost. The chance of this affecting any one of us throughout our working lives is high. The consequences go beyond pensions and security in later life, affecting people’s careers, personal lives, and also the UK economy.

“It’s 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.”