Pension changes good for late starters

Women who take time out from work to raise children sacrifice more than just several years' earnings and opportunities to climb the pay scale. They also risk reducing the amount of pension benefits they will be entitled to after retirement, even if they re-enter the workforce again.

If a woman joins a company pension scheme after she has re-entered the workforce, her period of service up to retirement age will be relatively short.

This may result in benefits at retirement that are low in relation to her earnings in the period prior to retirement. Some occupational schemes also have upper age limits which effectively prevent women who are re-entering the workforce after raising a family from joining.

Women will often have earned pension entitlements under occupational schemes before they left work to raise children, and it may be possible to transfer these to their new employer's scheme. Another way for people with reduced retirement benefits to boost their pension is to make additional voluntary contributions (AVCs) to the scheme.

AVCs are tax-free, but up to recently the maximum amount an employee could contribute was 15 per cent of earnings. Under this year's Finance Act, this will increase to 20 per cent for employees in their 30s, 25 per cent for those in their 40s and 30 per cent for those aged 50 or over. The change in AVC ceilings will help people who have started their pensions late to build up a nest egg for their retirement over the final years of their working life.

Women, who are not in full-time employment, will also benefit from the introduction of personal retirement savings accounts (PRSAs) under the Pensions (Amendment) Act 2002. A PRSA is a simplified way for homemakers, carers and others without access to an occupational pension scheme to set up an investment fund for their retirement and the first products should be available later this year.

Further changes may also benefit women who act as the primary carer in the family set-up. Under EU directives on part-time work yet to be implemented, employers are required to treat part-time workers, the majority of whom are women, no less favourably than their comparable full-time counterparts. This means they should provide access to pension schemes to part-time workers where they are available to full-time workers.

At the moment, people taking career breaks are not able to save for their retirement and need to check with their employer if they will be treated as having left service or whether their period of service before and after the career break will be treated as continuous.

People without personal pension plans or some form of benefit under occupational schemes must rely on their spouse's benefits or State pensions. Qualification for a State contributory pension depends on the average number of PRSI contributions paid from the time they started working.

People who left paid employment after April 1994 can disregard up to 20 years spent out of the workforce caring for children under 12 or incapacitated people, when calculating their yearly average contributions, under certain conditions. This is called the Homemaker's Scheme.