Gaps in payments, especially earlier on in a career, can inflict gaping holes on final pension provision. A five-year lapse in contributions, from the age of 30 to 35, can reduce a 30-year pension by as much as 25 per cent
Anyone with an intermittent contributions record, or thinking of taking a career break, should undertake a pensions health check. The pension provider - be it the employer company in occupational schemes, or the life office or financial adviser in the case of a personal pension - should be able to estimate retirement payments on current contributions.
The same exercise should be undertaken with state pension and Serps. Projections are available from the Benefits Agency.If interested, complete form BR19, Application for a Retirement Forecast. This can be obtained at Benefits Agency offices, or by writing to the Benefits Agency, RPFA Unit, Newcastle Pensions Directorate, Newcastle upon Tyne, NE98 1YX.
These estimates will help you judge whether provision needs boosting, and identify problems before it is too late.
Amanda Davidson of Holden Meehan, independent financial advisers, recommends those taking career pauses make up as much of the lapsed contribution as possible retrospectively, on returning to work. This can be done by contributing the full 17.5 per cent of salary that the rules allow for contributions to personal pensions, or in the case of occupational pensions, topping up annual contributions to the permitted maximum of 15 per cent of salary by way of additional voluntary contributions.
Making up for lost contributions will cost proportionately more but is worthwhile.
Women planning periods away from work to have children should maximise contributions before they leave employment, says Deborah Simon of Fiona Price and Partners, specialist women's advisers.
A personal plan entitles holders to make retrospective payments for up to six years. Occupational plan members can only pay contributions relating to the current tax year. So if children are planned in a couple of years, it is advisable to start paying the full whack now.
When choosing a personal pension plan, people must make sure they are getting the right level of flexibility, says Roddy Kohn of Kohn Cougar. Unitised plans increasingly allow for premium holidays, which mean that purchasers may take career breaks without being penalised, and may re- enter schemes without a fuss. Purchasers should check the amount of time contributions are required before premium holidays may be taken.
If protection is required to cover for breaks caused by illness, then people should look at permanent health insurance. "Waiver of premium" insurance provides for pension contributions in the event of sickness. It costs 2 per cent of contributions, and payouts kick in after six months off work. Another group affected by changing work patterns are frequent job-changers, or those who decide to take a break before they complete two years in a company scheme. People who remain in occupational schemes for less than two years have no transfer value on pensions, or deferred benefits.