07 Jan 2020

Ways to help carers save for their retirement

There are an estimated 8.8 million adult carers in the UK, according to Carers UK’s Juggling work and care (2019) report. Many are people who either give up work or balance their working lives with their caring responsibilities. There is no doubt that without these people, our already stretched social services and NHS would just not be able to cope.

Having been involved myself, alongside other family members, with the care of an elderly relative, I have seen first-hand how crucial additional caregivers are. Quite frankly, the standard care packages available are just not enough.

Figures from Carers UK reveal I was one of the five million people who combine work with caring responsibilities. But myself and my family were the lucky ones, in that none of us had to give up our careers or indeed our membership of our workplace pension schemes!

But there are many carers out there who’ve had to give up work or reduce their hours in order to give care. And subsequently, they’ve given up pension scheme membership or reduced their pension contributions. So not only do these ‘unsung heroes’ give up a good chunk of their time and even careers, many are sacrificing their own future retirement plans to look after friends or family members.

More than half of carers say that they’re unable to save for retirement; not surprising when you consider that 70% of carers are more than £10k worse off due to reduced working hours, according to Carers UK’s Caring & Family Finances Inquiry UK Report (2014). So, they face the prospect of financial hardship in retirement.

How can carers avoid losing out in retirement? The answer depends on personal circumstances and whether they’re working or not.

Carer’s credit

First, for anyone who gives up work temporarily or permanently, it’s important that they protect their state pension.

If someone provides at least 20 hours of care a week, they can get carer’s credit which ensures that their National Insurance (NI) record is maintained. Missing NI years can reduce state pension entitlement.

You don’t have to receive a carer’s allowance in order to be eligible for carer’s credit.

But maybe employers can help employees avoid giving up work?

Flexible working

Research carried out by Employers for Carers highlights the impact on employers in terms of the loss of key and experienced employees who need to leave the workplace to care for relatives.

Nine out of 10 employers confirmed caring responsibilities were negatively affecting productivity and resulting in the loss of valuable employees, in Employers for Carers’ The Caring at a Distance: Bridging the Gap (2011) research. But at the same time, carers working in the private sector had less access to supportive policies than those working in the public sector.

Supporting policies could include days off for carers, flexible hours or the ability to move to part time.

Staying in work protects an employee’s National Insurance record as well as some private pension funding.

Part-time employees

For those who do reduce their working hours, they consequently have less being paid into their pension scheme. But at least they retain some private pension funding.

Where the pension scheme allows for matching contributions, working carers might want to consider paying in the maximum percentage contribution rate so that they get more employer contribution. At least then the gap between their previous potential retirement fund and their part-time projection has reduced.

Alternatives to pensions

Everything above stands true regardless of age, but for those carers under the age of 40, a Lifetime ISA (LISA) could offer a great opportunity to bridge the retirement funding gap whilst avoiding tying up money until age 55 and beyond.

It doesn’t offer tax relief, but it does give savers a 25% government bonus up to £1k a year.

Not only do carers fill the physical gaps in social service and NHS provision, many also end up supporting their family members financially. Carer’s UK found that 68% are using their own income or savings to help cover care costs; so, tying up money is perhaps a scary thing.

Although it’s mainly positioned as a vehicle to help younger people get on the housing ladder, a LISA can also be used to help fund retirement. LISA holders can start withdrawing money from age 60 without penalty.

Many employers are now offering workplace ISAs including LISAs as part of their flexible benefit programmes.

Some are even allowing employees to redirect pension contributions over and above the automatic enrolment minimums into ISAs. A good set-up for a carer wanting to maintain pension funding whilst needing to ensure some accessibility should the need arise.

Caring about their retirement

As the UK population ages, the number of people in the workplace providing some form of care for an elderly relative is bound to increase.

Time spent caring doesn’t have to be swapped with a retirement of financial hardship. Flexible working and a holistic approach to workplace savings can help.

This article is provided by Smarterly.