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Women's career break can mean big pension cuts

Women who take a career break could be damaging their pension to the tune of £4,680 a year by not continuing to contribute to a retirement fund during their time away from work.

According to research by Duncan Lawrie Private Bank, a quarter of women are taking a career break or plan to do so in the future. The most popular reasons for time off work are having a baby, childcare, and travelling or living abroad.

But those who stop pension contributions while they are away could be left with a pension shortfall of as much as £70,000 if they take a five-year break during a typical 40-year career. The calculations assume starting a pension at age 25 and retiring at 65, a starting salary of £25,000 (going up 3 per cent a year) and pension contributions of 5 per cent per annum.

Worryingly, just under a quarter of women don't realise that taking a career break will have a negative impact on their pension. Twenty eight per cent of those planning time off said they have made no plans to compensate for any loss, while only 11 per cent said they plan to make up for it after returning to work by either working longer hours or by retiring later. Richard Boyd, chartered financial planner at Duncan Lawrie, said: "When travelling or starting a family, pension planning is never going to be anyone's primary concern.

"For some, a pension might be one spinning plate too many to manage, but its importance cannot be underestimated. Those that do let the plate fall may live to regret their decision."