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  • How to boost your family’s financial resilience

    Expecting in 2024? Here are 5 tips to boost your family’s financial resilience.

    It takes two to tango, but having a baby often lands a bigger blow to the financial resilience of women.

    Children are expensive and undeniably impact family finances. Couples will work together to budget for the cot, pram and nappies, but what’s often overlooked is the incoming impact to the woman’s future financial outlook.

    And it’s something that mums-to-be can’t afford to ignore.

    In this article we explore this in further detail, but it is not personal financial advice. If you’re not sure if a course of action is right for you, ask for financial advice.

    The ‘motherhood penalty’

    A ‘motherhood penalty’ exists, where women face career setbacks and lower earnings due to childcare responsibilities. A stark contrast to the ‘fatherhood bonus’, where the father in a couple has a higher participation in the workplace and receives the highest pay on average. The provision of good quality, affordable childcare, as well as increased willingness to allow flexible working are key to helping more women to rebuild their resilience.

    However, good financial planning can lessen the impact. Couples should try preparing well in advance of being pregnant, by understanding how their pay will be affected, the parental leaves available, as well as any impact to benefits in particular the pension.

    Here are 5 tips to boost your financial resilience when growing your family.

    1. Start talking money

    Women carry out 60% more unpaid work than men. This has financial implications, so it’s important to start talking money when considering adding a child into the mix.

    When embarking on the journey of parenthood, family finances should be an ongoing conversation. Understanding what your partner earns and the whereabouts of any family savings is essential for practical reasons, and even more important should something unexpected happen to either of you.

    Couples are far more successful at talking through tricky topics when they approach the issue as an ongoing conversation, rather than a one and done chat. Keep the dialogue open, try it informally over dinner, or on a walk – you don’t need to have everything figured out in one day.

    2. Flexible working is key

    Differing working patterns account for 33% of the gender pension gap - the pay gap is only responsible for 16%.

    After having a child, women may require some time away from work, but later childcare responsibilities can be shared between parents - particularly in this new era of flexible working.

    Crucially, this presents an opportunity for women to increase their working hours and with that comes better pay if they move from part-time to full-time work.

    3. Pay attention to your pension

    Women retire on average with pension savings of £69,000 compared to £205,000 for men. Getting more money into women’s pensions will help minimise the gender pension gap – and the earlier, the better.

    Take steps to make sure you’re maximising any employer pension contribution available, and where possible, try and maintain your contributions throughout maternity leave. If you are contributing, even at a reduced level, then your employer needs to maintain their contribution. Be aware that if you stop your contributions, your employer can do the same.

    If your employer deducts your pension contributions under a salary sacrifice arrangement, the entire contribution is treated as an employer contribution. During maternity leave, as your pay and contribution level decreases, your employer must bridge the gap, maintaining your pension contributions at pre-maternity levels.

    Remember, you cannot normally gain access to your pension until at least age 55 (57 from 2028).

    4. Look into Lifetime ISAs

    The Lifetime ISA (LISA) presents another opportunity to bolster retirement savings and prioritise future you with a helping hand from the government. You need to open the account by age 40, but once opened, you can pay into it until age 50. Each year you can deposit up to £4,000 and receive a 25% bonus – that’s up to £1,000 up for grabs annually.

    LISA tax rules can change and their benefits depend on your circumstances. You can withdraw money from a Lifetime ISA to buy an eligible first home, or for later life at age 60. Other withdrawals will usually mean a 25% government charge, so you could get back less than you put in.

    Find out more about LISAs

    5. Don’t sleep on State Pension credits

    Claiming child benefit for a child under 12 comes with attached National Insurance credits that count towards your State Pension. But if you or your partner earn over £60,000, you’ll have to pay back some or all of the child benefit via extra income tax. If you earn more than £80,000, you’ll have to pay the full amount back in extra income tax.

    To avoid life admin couples may skip claiming altogether, but this can have serious implications if one parent takes time off work to look after children, as you won’t receive the necessary credits to build up your State Pension. You can apply for child benefit and then choose not to receive the money, but still get the national insurance credit.

    It’s clear that proactive financial planning is essential for expectant parents to navigate the challenges ahead.

    Addressing the 'motherhood penalty' through open conversations about money, embracing flexible work arrangements, and prioritising pension contributions are key steps to ensure financial resilience. Exploring options like Lifetime ISAs and leveraging State Pension credits can further strengthen long-term financial security.

    By following these tips, families can better prepare for the financial responsibilities of parenthood and secure a more stable future.

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