Million of families could be losing up to £720 a year in government pension top-ups simply because they don’t know the rule exists.
One parent who realised too late says it’s a “quiet gap” that can snowball into a major loss over time.
The little-known government scheme provides a 25 per cent bonus on pension payments made by partners or family members.
Around 63 per cent of parents have never heard of this policy, which allows relatives to pay into a non-earner’s pension pot while they take time away from employment, Octopus Money research found.
The financial services firm estimates that British families have collectively missed out on approximately £2.5billion in pension top-ups during periods of parental leave, based on official ONS data.
Nearly two-thirds of those surveyed indicated they would have taken advantage of the scheme had they been aware of its existence.
Ekaterina, a 33-year-old product manager, is among the many parents who only discovered the pension rule after it was too late to benefit fully.
She received financial guidance while preparing for maternity leave and realised how significantly time away from work could affect her retirement savings.
“I didn’t know this government pension rule exists and I think that’s the same for a lot of other parents,” she said. “It’s a missed opportunity to keep long-term finances on track during a period when many of us are focused on day-to-day stability.”
Ekaterina explained that she and her husband discuss finances openly, adding: “If we had known that this was an option, we would definitely have done it. It’s such a practical way to balance financial gaps that can otherwise quietly grow over time.”
Ekaterina explained that she and her husband discuss finances openly
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OCTOPUS MONEY
The scheme permits partners or relatives to contribute as much as £2,880 per year into the pension of someone who is not earning, with HMRC automatically adding a 25 per cent bonus on top.
This effectively means families can secure an additional £720 from the government each year at no extra cost.
The policy was introduced more than two decades ago as part of Tony Blair’s 2001 Finance Act, yet it remains largely unknown among the British public.
Over a 30-year period, that annual £720 government contribution could accumulate to more than £3,000 through the effects of compound interest.
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The overlooked pension rule could see millions of families miss out on £720 a year
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PAThe rule represents one of the most straightforward yet underutilised methods for boosting retirement savings, particularly for those taking career breaks to raise children.
The research highlights a significant disparity in retirement confidence between men and women, with 42 per cent of female respondents stating they do not feel assured they will have sufficient pension savings to live comfortably, compared to just 28 per cent of men.
More than a third of parents surveyed admitted they had reduced, paused or completely stopped their pension contributions while on parental leave, with one in six halting payments entirely.
Data from Octopus Money’s own customer base of 13,000 individuals reveals the pension gap between sexes widens dramatically with age.
Women in their early twenties actually begin with slightly larger pension pots, but men overtake them by their mid-twenties. By the time they reach 55 to 60 years old, men possess approximately 40 per cent more in their retirement savings than women.
tUK families who missed the opportunity could have lost out on a total of £2.5billion in pension top-ups
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GETTYRuth Handcock, chief executive of Octopus Money, urged families to consider their long-term financial security alongside preparations for a new baby.
“I strongly urge all new parents to think about financial planning in parallel with family planning – to futureproof the whole family, not just the newest member,” she said.
The survey of 1,000 parents also revealed that more than half found parenthood hit their finances harder than anticipated.
When asked about their primary financial concerns, 45% cited saving for their children’s futures as their biggest worry, followed by everyday living expenses at 42 per cent.
Octopus Money is encouraging families to address what it calls the “Parenthood Pension Gap” by prioritising their own retirement planning alongside their children’s needs.