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Modern day careers are far more fragmented than previous generations’. People move jobs more frequently and taking career breaks to pursue out of work interests are also becoming more commonplace. But what does this mean for your pension and long-term finances? Your final pension pot may end up lower as a result of a career break, but it is still possible to keep your finances on track for your retirement.

In some scenarios, you take a three-year (for example) career break, and you miss out on 3 years of workplace pension contributions and possibly, by extension, lower salary due to missed opportunities and less money in your pot. Your lack of National Insurance contributions may also have a negative effect on your state pension, given that you need 35 years of contributions to qualify for a full state pension (currently £185.15 per week).

Maternity leave is especially pertinent in this regard as some working mothers find it challenging to return to work full-time. As a result, their pension pots and future savings can suffer. One option is to keep paying into your pension pot (subject to allowances linked to your potentially lower salary); even making small pension contributions can make a difference in the long term.

It’s important to note that before taking a career break, your finances are in a healthy state to allow you to prepare for all circumstances that you may face. The challenge of getting your finances into such a position likely means that you are disciplined with money and budgeting – which is a great starting point!

Increasing your pension contributions after your career break can be a simple way for your pension pot to “catch up” after a period of no or lower contributions. It may seem difficult to reduce your take home pay after returning from a career break, however in the long run, your future finances will benefit and there are often cost-effective savings that can be made with a proper financial plan in place. Consulting with a professional adviser to make a cohesive plan for your career break can help protect your long-term finances and allow you to enjoy some well-earned time off with peace of mind.

At Waverton Wealth, we are experts in financial planning and sound investment advice so get in touch for a consultation on your own bespoke financial path.

All information accurate at date of writing (17th June 2022).

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