Millions of pension savers are being let down by a savings model built for a working life that no longer exists, personal finance writer Rachel Rickard Straus has argued, warning that career breaks are leaving retirement pots "riddled with holes".
Writing for This Is Money, Rickard Straus said pension saving is treated like a marathon, where workers are expected to save a steady, fixed percentage of their earnings into a workplace pension from the moment they start work until retirement. But she said that model no longer reflects how people's careers actually unfold, since an unbroken run of employment from leaving education to retirement is increasingly the exception rather than the rule.
Young people falling through the gaps
The risk now begins at the very start of a career, according to Rickard Straus. Nearly one million people aged 16 to 24 in the United Kingdom are classed as Neets, meaning they are not in education, employment or training, and that number is rising.
She said the effect on lifetime earnings can be severe: a young person who does not work from the age of 18 can miss out on up to £300,000 in lifetime earnings, even if they eventually find a job at 24.
The impact on pensions is less discussed but still significant. According to calculations by investment platform Bestinvest, a 22-year-old who spends just a year out of work will retire with £31,500 less in their pension as a result. That figure assumes the person earns £35,000 over their working life and has total pension contributions of 10 per cent.
Mid-career breaks and ageist AI recruitment
Rickard Straus said mid-career gaps bring their own set of causes, including having children, caring for elderly relatives, poor health and redundancy.
She also pointed to a growing trend of workers in their 50s and 60s struggling to find work because they are coming up against ageist artificial intelligence systems used in recruitment. She argued that AI is transforming almost every profession at such speed that disruption to careers is now unavoidable, with jobs becoming obsolete, retraining becoming essential and the threat of redundancy ever present.
Even workers who are not forced out of a job may want or need a break, she said, as a rising retirement age stretches the length of a typical working life and pushes retirement further away.
The case for 'saving sprints'
Career gaps are inevitable, Rickard Straus wrote, but there is a solution: abandoning the idea of pension saving as a marathon in favour of what she calls saving "sprints".
Her advice is to divert a portion of any bonus, inheritance, redundancy payment or pay rise into a pension, and to increase pension contributions whenever affordable to help offset periods when saving is not possible.
She compared the approach to the playground game Grandmother's Footsteps, in which players creep towards a nominated "grandmother" while her back is turned, but must freeze the moment she turns around or they are out. In the pension version, workers should sprint their contributions while they are in work and able to save, so that when a career gap forces them to pause, they have already built in enough slack to keep their retirement on track, or even come out ahead.
The numbers behind saving sprints
Rickard Straus set out figures to illustrate the strategy. Someone who takes five years out of work at age 35 would have £123,400 less in their pension by retirement, using the same assumptions as the earlier examples. But if that person doubled their pension contributions for the five years before the gap, the shortfall would fall to just £47,600.
She gave a second example for an older worker: someone out of work for a year at age 55, earning £55,000 a year, would have £42,700 less in their pension by retirement. But by saving twice as much in the year before the gap, the shortfall would be reduced to £32,873.
Rickard Straus concluded that the old approach of saving slowly and steadily no longer serves savers well, urging workers instead to seize opportunities to sprint their pension contributions whenever they can.
