How taking a two-year career break could leave a £26k hole in your pension
Career breaks are increasingly common but it is important to take steps to protect your pension, as gaps compound over time


There are many reasons to take a career break, from exploring the world to caring for family members, but it is important to give some thought to your pension in the process.
A two-year career break could leave the average UK worker £25,600 less in their pension at retirement, according to analysis from consultancy Barnett Waddingham.
That is enough to cover more than one and a half years of essential retirement expenses, based on living costs from the Pension and Lifetime Savings Association.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
At a time when many are already at risk of retirement shortfall thanks to inadequate savings and soaring living costs, it is a cause for concern.
Separate data published by Scottish Widows shows two-fifths of the working population is now at risk of retirement poverty.
It is women who are the hardest hit by gaps in their pension contributions, as they are more likely to take time out of work to pick up caregiving responsibilities. As a result, they are more likely to face a shortfall in income when they retire.
The scale of the issue is significant. Barnett Waddingham says over nine million workers are either taking or planning unpaid leave, meaning they will not be benefiting from workplace pension contributions.
The good news is there are steps you can take to help mitigate the effects.
Increasing your annual pension contributions by between 0.6 and 1.3 percentage points upon returning to work could be enough to recover the losses associated with a two-year gap, based on the consultancy’s calculations.
“The traditional career path has evolved, but this can’t come at the cost of people’s retirements,” said Paul Leandro, partner at Barnett Waddingham.
“Thankfully, modest increases in pension contributions can bridge this gap. But at a time when pension engagement is already low, there’s a significant concern that many remain unaware of this issue,” he added.
Career breaks could prove more costly for younger workers
Taking an unpaid career break earlier on in your career could prove more costly than waiting until you are older because of the way investment returns compound over time.
Of course, the full impact will vary based on your salary and how this changes. Those who receive a sudden promotion and a big step up in their pay partway through their career may find the pattern looks different.
Barnett Waddingham has assumed a starting salary of £25,000 aged 21, which increases by 3% each year until retirement at age 66.
The consultancy’s calculations also assume you stick to the default pension contribution rate of 8% (made up of employee and employer contributions), and achieve annual investment growth of 5%.
Age when career break is taken | Size of pot age 66 without break | Size of pot age 66 with break | Difference | Increase in contributions needed to plug gap |
Age 30 | £567,769 | £537,081 | -£30,688 (-5.4%) | 0.6 percentage points p.a. |
Age 40 | £567,769 | £542,450 | -£25,319 (-4.5%) | 0.8 percentage points p.a. |
Age 50 | £567,769 | £546,880 | -£20,889 (-3.7%) | 1.3 percentage points p.a. |
How to boost your pension
As we have already explored, increasing your pension contributions is one of the best steps you can take to reduce the risk of retirement shortfall. Consider going further than the minimum increases outlined in the table above.
The default amount under auto-enrolment rules is 8%, made up of employer and employee contributions, but Scottish Widows recommends saving 12-15% of your salary into your pension each year to help achieve a comfortable retirement.
This includes your personal contributions, plus your employer’s contributions and tax relief.
Some employers are generous and will match your contributions up to a certain level, if you increase them above the default level.
Depending on your financial circumstances, you should also consider continuing your pension contributions while you are out of work.
Your budget is unlikely to stretch to this if you are taking time out to travel. However, if you are taking time out to care for young children, your partner might be able to help you out, if you are in a couple.
A disproportionate number of women are taking up the mantle when it comes to care-giving responsibilities. Combined with other factors, this has resulted in a stubborn gender pension gap.
In a survey conducted by digital wealth manager Moneyfarm, 42% of men said they would not be prepared to contribute to their partner's pension scheme during maternity leave. It is worth discussing before having children to make sure your views align.
“It is imperative that we address these disparities and foster a culture of shared financial responsibility,” said Carina Chambers, pensions technical expert at the firm.
“Encouraging open conversations about financial planning and the importance of supporting each other's long-term financial goals is a step towards achieving true gender equality.”
Those who aren’t in work but are in a position to continue contributing to a pension could consider paying into an old workplace scheme, or opening a new personal pension or SIPP. Make sure you look closely at the fees and investment choice before choosing an account.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.
Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.
Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.
Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.
-
Cash in on your attic: Thousands could be sitting dormant in your storage
Selling your valuables at auction could be far more lucrative than you think. We take a look at how auctions work, and some tips to help you maximise your profits
-
Revealed: The cost of running the Bank of Mum and Dad
Parents of children buying homes in certain parts of the country will need to spend significantly more to help their kids onto the property ladder