A little-known government pension rule is leaving millions of British families an estimated £720 worse off each year, with a collective shortfall reaching a staggering £2.5 billion.
The 'Hidden' 25% Pension Boost
The scheme, which remains under the radar for most parents, provides a significant 25% bonus on pension payments made by partners or family members into a non-earner's pension pot. This is designed to support individuals, often new mothers, who take time away from employment to care for children.
Despite its potential, research from Octopus Money reveals that 63% of parents have never heard of the policy. This knowledge gap means countless families are failing to claim valuable government top-ups during critical life stages, allowing long-term financial security to erode.
A Real-Life Impact and a Growing Gender Gap
Ekaterina, a 33-year-old product manager, shared her experience as one of the affected parents. "I didn't know this government pension rule exists and I think that's the same for a lot of other parents," she said. She described the missed opportunity as a practical way to balance financial gaps that "quietly grow over time."
The consequences of this oversight are starkly illustrated in pension savings data. Analysis of 13,000 Octopus Money customers shows the pension gap between men and women widens sharply with age. While women start slightly ahead in their early 20s, men overtake them by their mid-20s. By the time they reach 55 to 60 years old, men have around 40% more in their pension pots than women, demonstrating how a pause in contributions can snowball over decades.
Urgent Call to 'Close the Parenthood Pension Gap'
Ruth Handcock, chief executive of Octopus Money, is urging a shift in mindset. "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 stated.
The firm is campaigning for families to actively 'Close the Parenthood Pension Gap' by prioritising their own long-term finances alongside their children's immediate needs. To assist, Octopus Money has created a calculator tool that shows the potential impact of parental leave on pension savings and outlines steps to mitigate the loss.
Based on official ONS data, the estimated £2.5 billion in missed top-ups highlights the scale of the issue. Experts conclude that raising awareness of this hidden rule is crucial for improving financial resilience for millions of UK families facing the challenges of parenthood.
