New childcare Budget: Parents could see pensions boost of £33,000 thanks to new plans | Personal Finance | Finance
Chancellor Jeremy Hunt announced a whole host of reforms to the UK childcare system during Wednesday’s Spring Statement in an effort to curb concerns about rising costs and encourage people to go back to work. The move could also provide parents with thousands more to add to their pensions, an expert has said.
Announcing the new measures to the House of Commons, Mr Hunt said: “We have one of the most expensive systems in the world. Almost half of non-working mothers said they would prefer to work if they could arrange suitable childcare.
“For many women, a career break becomes a career end. Our female participation rate is higher than average for OECD economies, but we trail top performers like Denmark and the Netherlands. If we matched Dutch levels of participation, there would be more than one million more women who want to work, in the labour force. And we can.”
He continued: “I don’t want any parent with a child under five to be prevented from working if they want to, because it’s damaging to our economy and unfair mainly to women.”
Commenting on the Budget that “blew expectations out of the water”, Myron Jobson, senior personal finance analyst at interactive investor, said: “This blockbuster Budget was a case of everything, everywhere all at once with announcements seemingly impacting every facet of society.”
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However, he continued: “Among the biggest winners of the Budget are parents, with the announced extension of free childcare of 30 hours a week for working parents to cover children from nine months is a game-changer.”
Th 30-hour offer will start from the moment maternity or paternity leave ends, which Mr Jobson said: “Could finally stack the numbers in favour of many parents who have given up on full-time work because of eye-watering childcare costs – a fate that is statistically experienced by mothers most.
“As such, it could prove to be an important step forward towards addressing the gender pay and pension gap. interactive investor estimates that the gender pension gap alone is £68,000.”
Providing an example, Mr Jobson said: “A 30-year-old earning £33,000 and with eight percent of qualifying earnings being paid into a pension (the minimum auto-enrolment contribution under current rules stipulating the employer contributes three percent) could boost their pensions savings by £5,500 by working for an extra two years and three months because of the extension of free childcare.
“Assuming investment growth of five percent per year, which is just a scenario, over the course of a working life, by age 68 that could mean an extra £33,000 in a pension pot – a significant uptick which could help ensure a more comfortable existence at retirement.”
The full benefit of the policy will not be felt until September 2025, as the measures will be phased in gradually from April 2024 onwards.
Mr Jobson added: “Plans to start paying childcare costs upfront for those on universal credit and letting people continue claiming sickness and disability benefits if they find work would remove significant barriers that stop some of the most vulnerable members of society from building a career.
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