Counting the cost of kids

Jean Eaglesham tots up the price of a career break in the last of a series on women and finance

WHAT price the patter of tiny feet? It costs at least pounds 30,000 to bring up a child to the age of 16, according to a survey by Legal & General, the insurance group, and that excludes private education and full-time child care.

But the financial implications of having children are not limited to the direct drain on your savings. For women, taking a career break or a succession of breaks can have a significant effect on their financial position.

For example, five years out of the workforce will cut your pension by roughly one fifth, according to Fiona Price of Fiona Price & Partners, the independent financial advisers.

Even women who decide not to take a long break are likely to be affected. While most women now return to work after having children, they may well see a drop in their total income. Working mothers whose youngest child is aged under five, for example, are almost twice as likely to be in part- time jobs (which are often low-paid) than full-time employment, according to the Equal Opportunities Commission (EOC).

But taking a career break is not entirely bad news financially. There are opportunities to turn a lack of earnings into a tax advantage by, for example, moving investments from a partner's name into your own name to make full use of your personal tax allowance which, for the current tax year, allows you to have up to pounds 3,525 of income tax-free. .

The key to managing the pros and cons of a career break is planning. The main areas to consider are:

q If, and when, to return to work. It is not always easy to work out whether you stand to win or lose financially by returning to work at the first possible opportunity.

Check what deal your employer offers. All employers must offer a minimum level of maternity leave and pay. The rules are complex but in general all woman are entitled to a minimum period of 14 weeks' maternity leave. If you have worked for your employer for more than six months you are entitled to 90 per cent of your average earnings for the first six weeks of leave and pounds 52.50 a week (rising to pounds 54.55 in April) for the next 12 weeks.

Some employers offer better terms. A survey of 243 firms conducted by the EOC last year found that most offered more than the statutory minimum maternity pay and leave, and around half offered career breaks (that is, an opportunity to return to the same job after, say, five years away). However, an EOC spokesman said that the firms that responded to its questionnaire were likely to offer a much better deal than the average employer. The pay you will get from going back to work (part-time of full-time) needs to be balanced against the costs of childcare.

q How the career break will affect your pension. The knock-on effect on your pension is one of the most important financial aspects of taking a career break. If you are in an occupational scheme, then your employer has to keep making pension contributions during your statutory or contractual period of maternity leave, provided you return to work at the end of that leave.

What is more, the pension benefits have to be calculated on the basis that you are on full pay during that leave - so if your pay is reduced and, therefore, your own contributions come down, your employer is required to make up the shortfall.

You cannot take a full-blown career break and still keep your pension going. Pension contributions have to be made out of taxable earnings although, if you have a personal pension, the tax rules allow you to keep making contributions for all of the tax year in which you take maternity leave, even if your earnings are only for a few months.

If you do have a personal pension, check whether the rules allow you to stop and then restart making contributions. "Quite often, far too often in my opinion, pension providers do charge you for taking a contributions holiday of, say, six months or more," says David Lee, a director at The Research Department, a financial products analyst.

Added to the possible charge is the fact that you are not paying into the pension fund when you are still fairly young, so you are losing a lot of years' potential investment growth on those missed contributions.

"If you take a fairly extended break, you'll have quite a bit of pensions ground to make up when you decide to return to work," said Helen Bath of Womanwise, the independent financial advisers. "If you have some spare savings, then it may well be worth putting a lump sum into a single premium personal pension when you return to work."

Contribute as much as you can to your pension before you take a career break - the earlier you make contributions, the more valuable they are since the money has longer to grow.

q Check your life insurance cover. If your employer offers free life insurance cover, you may need to replace that cover during your career break.

In addition, if you already have a life insurance policy then, if possible, keep paying the contributions during your career break as otherwise it will cost more to buy fresh life cover when you are older, advises Ms Bath.

q Review your budget. Think about your overall financial position. As Ms Price says: "It's always more expensive to have children than you think."