Parents could be missing out on free pension top-ups
Hidden pension rule cost me £720 a year – I didn’t know it existed (Image: Getty)
Nearly two-thirds of parents were not aware they could receive a £720 top-up from the Government into their pension pots. When a person is out of work, such as on maternity leave, a partner or relative can pay up to £2,880 annually towards their pension.
Under the scheme introduced decades ago, HMRC automatically tops this up by 25%, effectively giving the person out of work up to £720 for free annually. However, Octopus Money research found that 63% of parents had never heard of this policy, based on a survey of 1,000 adults.
With many women taking long-term periods out of work due to maternity leave, the disparity has the potential to impact women more significantly.
The Government found that only 5% of eligible fathers had taken advantage of its shared parental leave scheme in its 2023 evaluation, which allows parents to “share” up to 50 weeks of leave in the first week of their child’s birth.
Ekaterina, a 33-year-old product manager, admitted she did not know about the scheme and only learned about it while she was preparing for maternity leave.
She told GB News: “I didn’t know this government pension rule exists and I think that’s the same for a lot of other parents. It’s a missed opportunity to keep long-term finances on track during a period when many of us are focused on day-to-day stability.”
Octopus’ customer base of 13,000 individuals revealed a long-term financial disparity between men and women.
While women in their early twenties began with slightly larger pension pots, men had 40% more retirement savings than women by the time they reached 55 to 60 years old.
Octopus Money has encouraged parents to address what it describes as the ‘parenthood pension gap’, with more than half of the adults surveyed admitting that parenthood has hit their finances harder than expected.
A third of parents surveyed said they had either reduced, paused or stopped their pension contributions while on parental leave, with one in six having halted payments entirely.
Ruth Handcock, chief executive of Octopus Money, said: “I strongly urge all new parents to think about financial planning in parallel with family planning – to futureproof the whole family, not just the newest member.”
The scheme was introduced under Tony Blair’s 2001 Finance Act.
