Changes to pensions - average pay impact on stay at home mums

[Ishbel80]

There's nothing in the media about the impact of moving to pensions calculated on average pay if you've taken time out or work part-time when your children are small. Does anyone know if mums need to be concerned about this and take it into account when deciding what to do?

I was thinking about this last night. I haven't really followed the changes, but - as as mum who has taken out most of her twenties to be at home - I guess previously I could have worked v hard on my return to work & got to the top of the trees then retired on a final salary pension... & now I can't.

Someone might be along who knows about it?

I've never worked full time regularly ( part time contracts topped up) and at 32 with a tiny baby going to be a couple of years yet (hopefully) but that will still give me 30 years before retirement.

First point to make is that this proposal only relates to public sector workers. It does not affect you if you work in the private sector, nor does it affect state pensions.

Hutton's proposals are not fully detailed so, if you are in the public sector, there isn't an immediate answer to your question. However, broadly speaking career average will be more generous than final salary for lower paid and part time workers, less generous for high earners and roughly the same as final salary for those in the middle.

Thanks all ... think I might be worrying too much in advance - by the time we get old, who knows what the situation might be!

Prh47 - are you saying that career averages are worked out on the number of years you actually work rather than the number of years that you could have worked ie if I take out ten years and retire at 65 then my career average is worked out over say 35 years rather than 45 years? Will still be a pittance ... my partner has worked in the public sector for 20 years and his pension is currently coming in at under £2K per year.

like prh says hutton's report only relates to public sector pensions. The proposals are broadly that for future employment pension will be on a career average basis instead of final salary. Career average gives you a 'slice' of pension for every year - usually something like 120th of your earnings. Each slice increases by inflation until you come to retire and all slices are then added together to give you an annual rate of pension.

piebald, from what you describe, stay at home mums will take a hit for the years they are not in work because they will forgo their 'slice' for those years.

So pretty much like what happens in the private sector then. Cannot see that as unfair.

Average salary is really a bit of a misnomer. No-one actually works out your career average earnings. As piebaldpony says, what actually happens is that each year you get a slice of that year's salary added to your pension. For those remaining in the public sector that slice will be uprated annually by average earnings - that is usually more generous than uprating by inflation. Once someone leaves the public sector it will continue to be uprated but Hutton has left it up to the government to decide whether that should be in line with earnings or inflation.

I had a play on a pensions modelling programme (think it may have been in one of the research stages of this) In every scenario I came up with, I was worse off under the "career average" calculation.

It is only "fairer" in the sense that certain groups (IIRC, this who would never expect promotion or consolidated progression/performance awards) will lose a bit less than those who hope to move up through a hierarchical system. Career breaks had a similar impact under both systems.

The more you get promoted in your career the more you will lose out under thenew system. If you stay on the same grade throughout your working life there will be no impact

According to pensions professionals, low earners and part timers will be better off, high earners will be worse off and those in the middle will be about the same. I haven't done the calculations myself so I can't confirm this