Millions of people could see their retirement plans disrupted by major changes in family life, according to new analysis. Supporting adult children financially, getting divorced, and taking on unpaid caring responsibilities can all reduce the amount people can set aside for later life.
The warning follows a report by the Pensions Policy Institute (PPI) for the Association of British Insurers examining how housing, household circumstances, and automatic enrolment affect retirement outcomes. PensionBee has highlighted three increasingly common life events identified in the research that could leave people with less money than expected in retirement.
The impact may not always be obvious at the time, as people can reduce pension contributions, take career breaks, or use savings previously intended for later life. Maike Currie, VP Personal Finance at PensionBee, said retirement security was about more than simply the amount already accumulated in a pension.
She said: “Retirement adequacy isn’t simply about how much money sits in a pension pot. It’s also about the financial commitments that continue throughout our working lives.”
Supporting grown-up children
The financial responsibility of having children increasingly continues long after they finish school or university. Some 3.6 million adults aged between 20 and 34 now live with their parents, according to figures highlighted in the research. Other parents may be providing financial help towards rent, everyday bills, or a deposit to enable their children to get onto the property ladder.
While an adult child living at home and contributing towards household bills can improve a family's finances, the situation can work in the opposite direction when parents are providing the financial support. Money used to help grown-up children could otherwise have been added to pension contributions or retained in savings for retirement.
Parents may therefore appear to have built up healthy retirement savings while continuing financial commitments to their children are placing increasing pressure on that money. Currie said: “Supporting children is often one of the biggest of those commitments, and it's becoming an increasingly important part of the retirement picture.”
Getting divorced
Pensions can be among the most valuable assets owned by a married couple but may be overlooked when they separate. People can understandably concentrate on what happens to the family home and other immediately visible assets during a divorce. However, research cited by the PPI found that more than a third of divorcees did not know the value of their own pension when they separated. Just 11 per cent of those with an undrawn pension made arrangements to share it.
The long-term consequences can be particularly significant for women. The report found divorced men appeared to retain larger pension pots following separation, while divorced women consistently had less pension wealth than married women. The difference becomes greater during the years approaching retirement, reflecting factors including lower earnings, career breaks, and caring responsibilities. Some women also appeared to access their pensions earlier to help cover their living costs.
Currie said: “Divorce is one of the biggest emotional and financial events in a person’s life with pensions often treated as an afterthought. People naturally focus on the family home because it’s tangible, but retirement can last 20 or 30 years. Giving up pension wealth without understanding its long-term value can have consequences that last a lifetime.”
Becoming an unpaid carer
Taking time away from work or reducing working hours to care for somebody can also have a significant impact on retirement finances. This can include raising children, looking after an ageing parent, or having responsibility for both at the same time. Reduced working hours can mean lower earnings and consequently smaller workplace pension contributions. Longer periods away from employment can also interrupt someone's pension saving altogether.
The effects disproportionately fall on women because they are more likely to undertake unpaid caring responsibilities. PensionBee describes this as potentially creating two separate financial penalties during a woman's working life. Currie said: “Many experience the motherhood penalty in their thirties, only to encounter the good daughter penalty in their forties and fifties as they become the default carer for ageing parents. The timing is brutal, arriving just as careers and pension saving should be accelerating.”
The PPI report considers potential measures to protect the retirement prospects of unpaid carers, including state-funded pension contributions during periods of care and pension top-ups linked to recognised caring responsibilities. However, such measures would carry costs and practical challenges. Currie added: “Caring is one of the biggest hidden risks to retirement adequacy. If we value unpaid care, and we should, we also need to think about how we protect the long-term financial security of the people providing it.”
