Whether due to parental leave, caring duties, or the rise in the cost of living, employees need to be aware of the impact that taking a break in pension contributions could have on their retirement. As a provider of pension schemes for some of the UK’s best-known companies, Aviva has enhanced their Retirement Savings Calculator to help employers and advisers to guide the conversation.
A pension is an investment in the future. If less is paid into it now, there will likely be less money available to provide an income in retirement. But for the 90,000 people in the UK starting a career break each year[1], pension contributions are often reduced or stopped altogether.
This begs the question: are employees thinking about the long-term impact of paying less into their pension?
There hasn’t been a straightforward way for them to assess the potential change to their retirement fund – until now.
Introducing Aviva’s enhanced Retirement Savings Calculator
We’ve taken our Retirement Savings Calculator to the next level. Now all Aviva Workplace Pension members can see what changing their pension contributions could do to their pension pot.
Helping members make considered decisions about their pension contributions is key to making a comfortable retirement achievable.
We see our enhanced Retirement Savings Calculator as a way to steer conversations between employers and employees about taking any kind of career break.
Aviva Workplace Pension scheme members can try out the Retirement Savings Calculator now by logging into their online pension account.
Employees want support
The 2024 Aviva Working Lives Report[2] found that 75% of people want more support and guidance from their employer about planning for a financially comfortable retirement, while more than a quarter (28%) are not confident planning for a financially comfortable retirement.
Employees’ biggest concerns are not being able to afford the basics in retirement or not making the right choices to ensure their pensions last for the rest of their life.
Our report also found that over half of employers think their employees are worried about their financial wellbeing.
Women are financially worse off than men in retirement
Maternity leave is a common reason for a pension contributions break. While employers must continue their contributions at the employee’s ‘normal’ salary during maternity leave, employee contributions will be taken as a percentage of their maternity leave salary.
Contributions, then, will likely be less during maternity leave. And, while pension contributions may well be the last thing on an employee’s mind before she heads off on maternity leave, they shouldn’t be.
In fact, reduced contributions during maternity leave can be the start of a reduction in pension contributions for women that never recovers.
The gender pension gap
Government research found that fewer than one fifth of all new mothers are in full-time work three years after childbirth, compared to 90% of new fathers[3]. Known as the motherhood penalty, women’s earnings stagnate when they become parents while men’s tend to increase[4].
It’s no surprise, then, that Aviva workplace pension data shows that the gap in pension contributions between men and women widens to 49% by the ages of 65-69.
And, although auto enrolment is helping narrow the gap, research by the Money and Pensions Service has found that women are significantly less likely to engage in retirement planning and to develop a retirement plan than men[5].
According to Government data, the gender pension gap stands at 35%[6] — that is, women have 35% less private pension wealth than men[7]. It’s a huge difference: the latest figures available show that by 2018 to 2020, the average value of private pension wealth was £94,000 for women and £145,000 for men at age 55 to 59[8].
Cost-of-living
Almost three out of four employees (73%) of people surveyed in the Aviva Working Lives Report 2024 said the cost-of-living crisis has made them feel more anxious about their finances.
According to Living Wage Foundation research[9] 9% of UK adults decreased or stopped their pension contributions in the previous six months in 2024. And 6% of UK adults expect their personal pension contributions to decrease or stop in the next six months, with cost-of-living cited as the main reason.
Women are harder hit than men by the cost-of-living crisis, with 9% decreasing their pension contributions in 2024 compared to 6% of men.
Support for employees
Ultimately, by enhancing our Retirement Savings Calculator, we hope to help employees make informed decisions, better prepare themselves for the future, and improve their financial wellbeing. To find out more about the Retirement Savings Calculator please speak to your usual Aviva contact.
[1] https://www.cipd.org/en/the-people-profession/careers/career-guidance/manage-career-break
[2] https://static.aviva.io/content/dam/document-library/adviser/workplace/SP98723.pdf
[4] https://maternityaction.org.uk/2023/12/mothers-work-and-the-cost-of-living
[7] https://researchbriefings.files.parliament.uk/documents/CBP-9517/CBP-9517.pdf
[8] https://researchbriefings.files.parliament.uk/documents/CBP-9517/CBP-9517.pdf