Millions of parents miss out on free pension cash by overlooking this rule
Millions of UK parents are missing out on hundreds in free pension cash after being left in the dark by employers about a pension rule for new parents.
While most parents are aware of child benefits and junior ISAs, many are losing as much as £720 per year after overlooking a far less familiar perk.
According to Octopus Money, over 60 per cent of parents are unaware that they can pay into a non-earning partner’s pension during parental leave, with the government automatically topping it by to 25 per cent.
In order to use the allowance, a partner of a family member pays £2,880 into the pension, with the provider then claiming £730 in basic-rate tax relief from HMRC.
This brings the total contribution to £3,600 with no paperwork or tax return required, providing funds to stay at home parents as well as those on leave.
But if a higher or additional rate taxpayer makes the payment, they cannot claim the extra rate relief available on their own pension contributions.
Pension gap widening earlier than expected
The lack of knowledge around the government incentive is exposing parents to a potential decades-long pension gap, through the halt or reduction of pension contributions during time away from work.
This has caused savers to call for more help from employers to understand their pension schemes rules and incentives, with just 24 per cent receiving financial guidance prior to going on leave.
Similarly, while nearly half of parents said there was some support from employers, more could have been done, and almost a fifth said their employer did not support them fairly.
The lack of education also caused 52 per cent of working parents to be unaware of the impact parental leave would have on their pension pot and their partners, with 20 per cent not making any sort of financial plan.
Ruth Handcock, chief executive of Octopus Money, said: “Most people go on parental leave without any financial guidance from their employer, exposing them to long-term pension damage.
“Great strides have been made to support parents when they return to work, but support shouldn’t just be confined to inside the office walls.
“Pensions are something most people engage with mainly through the workplace, so responsible employers should be ensuring their employees know what happens to their pay and benefits when they go on parental leave, and encouraging them to make a plan.”