Around two in three people are likely to take time out of work to provide unpaid care for loved ones at some point during their working life, according to a new report.

Unpaid carers play an important role in society, but taking time out of work to provide care for family members could mean they miss out on valuable pension contributions, according to online pension provider PensionBee’s The Carer’s Pension Gap report. This could significantly reduce the amount of income unpaid carers ultimately receive in retirement.

There are several scenarios when people are most likely to take time out of work to provide care, according to the survey of 1,489 people, but it is often those in their late 50s or early 60s who provide the most unpaid care, in the run up to retirement. For example, two in 10 (19%) unpaid carers between the ages of 55 and 64 are caring for grandchildren.

Around half (48%) of people who said they had to take time out of work to provide unpaid care are taking care of children, the report found. Three in 10 (30%) are caring for parents, around two in 10 (21%) are caring for partners, and 15% are looking after grandparents.

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Impact on retirement savings

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.”

Government help

If you’re an unpaid carer who is providing care for someone for at least 35 hours a week, you may be entitled to claim Carer’s Allowance. Read more in our article What is Carer’s allowance and who gets it?

Carer’s Allowance can help to meet living costs if you’re taking time out of work, ais not means-tested, so it doesn’t matter how much you and your partner have in savings, although your earnings can affect your eligibility. You can only get Carer’s Allowance if you earn less than £139 a week from work after tax, National Insurance and expenses.

For more guidance and support, you might want to visit the care section of our website. Parents and carers can also receive National Insurance credits if they’ve taken time out of their career to bring up children under the age of 12, or family who are ill or disabled. Read more in our article Caring for grandchildren: how it can help you boost your State Pension.

You need 35 ‘qualifying years’ of National Insurance Contributions (NICs) to qualify for a full State Pension, at £203.85 a week in the 2023/24 tax year. If you have gaps, you might want to consider if you can claim NI carer credits, or whether you can pay voluntary contributions to fill in these to receive a higher amount in retirement. Read more in our article Is it worth paying to top up your State Pension?

If you are the person needing care, and are reliant on unpaid care because you can’t cover care costs, you may be eligible for Attendance Allowance, provided you’re over the State Pension age and have a disability which means you require care.

This is a non-means tested, tax-free payment to contribute towards your care needs and living costs, which is usually paid every four weeks. Find out more in our guide What is Attendance Allowance and who is eligible?

Find the UK's best care options with Lottie

Not sure where to start looking for care for your loved ones? Find the UK’s best care options, handpicked and vetted by experts on Lottie. They’ll guide you through every step of finding the right care.

Search care options

Where to go for pensions help

You will have to pay if you want tailored pension advice from a financial advisor, but you can get free pension guidance from the Pension Wise website.

You can find a local financial advisor on VouchedFor* or Unbiased*, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.

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