Working part time and effect on pension

[duvets]

I’m currently working 4 days and would like to continue throughout the time the kids are in primary. Youngest starting Reception this year.

It’s so much more manageable for all of us, but I’m worried about what impact it will have on my pension in the long run. Income wise we have to be sensible, but can cope, and it is worth it for the extra time right now.

Any advice at all please? How much damage will it do to my pension? Or how do I begin to work that out so I can make a proper decision?

I'd try and pay into your pension as much as you can - for the next 7 years would it be possible to put any extra money from pay rises etc straight into pension rather than taking home extra money? The benefit probably depends on how much your employees contributes

What type of pension (db? Dc?) l. What does your employer contribute?

There are about a million factors here. The type of pension. Your actual salary. The percentage you're paying in. Your age. Your retirement plans. Whether you're married and, if so, the state of your spouse's pension.

Sometimes you can buy extra years. Worth asking your employer.

As others have eluded to, you’ve asked a pretty broad and open ended question there.

Two things you can/should do:

1. look at your latest pension statement for the forecast. Or request one from your provider.
2. Consider making additional contributions either to you existing scheme or to a private one. You can choose to pay in as much as you can afford or you can do a rough calculation of the difference your 0.8 PT hours makes. So, basically contribute 25% extra on top of what to you’re doing for your 4 days.

It’s DB and 14.5% employer contribution.

Yes. And I’m struggling to know where to start!

Sorry, it is broad because I am unsure. Thanks, good starting points, I will investigate both.

I am on track to have a similar pension to my DH. I have worked part time do rthe last 10 years but for 15 years before that I was full time and earned more than him so it's not just about the hours you work.

Indeed. Ts&Cs vary a lot. Some employers contribute the bare minimum, others are more generous.

@duvets - do you know what percentage you and your employer contribute?

If it’s already generous then I wouldn’t worry too much personally.

Yes @FinanceName it’s 6.1% employee and 14.5% employer contribution.

That’s very good.

So, by all means if you feel you have spare cash you could make extra contributions, but given your children are still young I’d personally put it in savings that you can get to rather than pension.

Are you married?

Thank you for commenting, much appreciated!

Yes

My gut feeling is that a handful of years when you have young kids, say in mid thirties, are not going to be a gamechanger when you reach a retirement age that even now is nearly 70.

However, you need to ask your HR/Business services folks to explain in your own scheme's context.

Our joint financial "pot" tops up the difference in both my employee and employer pension contributions of me working PT after ML. It's a family household expense. There should be no way your future finances are worse off from you working PT. I put the money in separate private pension which is also available to me from age 57 rather than State Pension Age if I wanted to fund early retirement.
Are you Local Government?

I assume you are in USS pension scheme. The employer contribution is a red herring really - you build up a guaranteed chunk of pension each year that grows with inflation.

Each year, you build up a pension of 1/75 of your salary.
so if you earn £50k per year, you’d build up 50000/75 of pension per year = £667 per year. So if you work on that salary for 40 years you’d build up a pension of £667 x 40 =£26,680.00 (at least that is what it is in today’s money - it will be more in pound terms as increases every year both before and after retirement with inflation).

if you work 4 days per week on the above salary, for the period you work part time it would be based on your 4-days per week salary of £40k. So each part time year you’d build up £533 instead of £667 so £134 less per year. So if you did 4 days for 8 years that would mean £1072 less annual pension overall.

obviously you’d need to do the figures with your own salary, but my feeling is that this should be doable for a few years and make a big difference to your everyday life when your kids are small

If it’s defined benefit ignore the employer contribution- it’s basically irrelevant. You need to be looking at what you’re actually accruing each year and make the comparison. I agree with post above and would calculate in very similar ways.

so if you’re civil service for example you’d get 2.32% of salary for each year of working.

Say full time is £40k and 0.8 is £32k you’d be accruing £928 per year versus £742 per year. You’d have the chance to make additional payments to cover the gap but they are expensive (because you doing have the employer condition).

It will affect it as your contributions and employers will obviously be lower as your FTE is less than 1.

Can you buy added pension? Could put you back to full time amounts

Thank you @PosiePerkinPootleFlump and @Bunnycat101 for the examples much appreciated