Third of adults stop saving for future to cover childcare costs

Over a third (34%) of adults have stated that the cost of childcare has stopped them from saving for their retirement, Phoenix Group has found.

A survey by the savings and retirement business revealed that three in 10 (29%) adults with a child under five years old have reduced their working hours or have left work because of the cost of childcare.

This figure is much higher for women (43%) compared to men (15%).

Phoenix Group warned that this reduction in working hours will lead to lower contributions to workplace pensions, which affects savings for retirement, unless contributions are increased by employees.

Furthermore, there is also the risk that parents are excluded from workplace pension saving entirely if their salary is under the auto-enrolment earnings threshold of £10,000.

Exclusion from pension auto-enrolment is three times more likely to occur for women than it is for men.

Head of research and policy at Phoenix Group’s longevity think tank, Phoenix Insights, and chair of the families at Phoenix colleague network, Patrick Thomson, said: "Childcare costs can be crippling, and parents often face the dilemma of reducing working hours or dropping out of work entirely as they weigh up the benefits of working compared to paying childcare fees.

"Alongside the immediate impact on take home pay, it is also important to consider how this can affect future finances. Most people saving in a workplace pension pay a proportion of their salary to their retirement savings alongside an employer contribution, so any decrease in earnings from working less can lead to reduced pension contributions."

From April 2024, working parents of two year-old children will be eligible for 15 hours of free childcare support per week, over 38 weeks of the year.

When asked about this extension of childcare support in England, 71% of working parents said they would increase their working hours if they could access the free childcare support.

Of those parents currently out of work, 64% said they hoped to return if they could access the additional support.

Boosting income to cover living costs was the primary reason parents gave for increasing their working hours, followed by the ability to save and the desire to focus on career progression.

Thomson added: "Expanding the free childcare hours in England will offer some financial relief for working parents, and also support them to remain in work and continue to save if they are able. But it is crucial this goes hand-in-hand with measures designed to boost the availability of formal childcare. There is also an important role for employers to offer more flexible working arrangements for those with childcare responsibilities, particularly for those who feel that leaving work is their only option.

"Parents understandably want to provide for their children today, but that shouldn't have to be at the cost of their own financial wellbeing in the future."

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