Spring Budget: why parents could see pensions boost of £33,000

interactive investor examines the impact of the extension of free childcare.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It was a Budget that blew expectations out of the water as the chancellor seeks to reinforce the UK economy from prevailing headwinds with his for four pillars for growth: Enterprise, Education, Employment and Everywhere. This blockbuster Budget was a case of everything, everywhere all at once with announcements seemingly impacting every facet of society.

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“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. It will now start from the moment maternity or paternity leave ends and 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.

“For example, a 30-year-old earning £33,000 and with 8% of qualifying earnings being paid into a pension (the minimum auto-enrolment contribution under current rules stipulating the employer contributes 3%) 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 5% 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.

“But the full benefit of the policy will not be felt until September 2025, with parents of the youngest eligible children facing the longest wait. But the financial reprieve can’t come soon enough for many parents as the ongoing cost-of-living crisis continues to squeeze finances.

“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. So too is the newly announced new voluntary employment scheme for disabled people, called Universal Support. The ambition on wraparound care for children from 8am to 6pm is also a boon.”

Energy bills support

Myron Jobson says: “Aligning the pre-payment meter charge with prices for customers paying by direct debit is the right thing to do. Low-income households are particularly exposed to hikes in energy bills as they spend a higher proportion of their budget on essentials. Yet this cohort is more likely to have a prepayment meter which can make typical bills hundreds of pounds more expensive than direct debit payments. This could be the difference between heating or eating for hard-pressed households.

“Lower-than-expected spending on energy support schemes thanks to falling wholesale gas prices and the milder winter as well as stronger tax receipts have given the government wriggle room to extend the Energy Price Guarantee at current levels, limiting the typical household bill to £2,500 a year. The scheme will now come to an end at a time when Ofgem’s energy price cap is forecast to fall below the EPG, making the latter redundant. So, the three-month extension makes sense.”