Can foster carers join a workplace pension?

A workplace pension is normally available only through an employment relationship. Foster carers are generally approved to provide care under an agreement with a fostering service rather than employed under a contract of employment, so fostering payments do not usually give them access to that service’s workplace pension scheme.

This distinction is important because fostering payments are made to support the costs of caring for a child or young person and to recognise the role undertaken. They are not normally processed as wages through an employer’s payroll. As a result, a fostering service would not usually enrol a foster carer into its employee pension scheme or make employer pension contributions based on fostering payments.

There can be exceptions where an organisation has created a specific employment arrangement for a particular role. Your legal status depends on the terms of your agreement, how payments are made and the arrangement operated by the fostering service. Before relying on an assumption, check your fostering agreement and ask the service to confirm whether you are an employee, a self-employed foster carer or engaged under another type of arrangement.

If you have a separate job, you may be able to join that employer’s workplace pension. Eligibility will depend on the employment contract, your age, earnings and the scheme’s rules. Becoming a foster carer does not normally remove pension rights connected with another job. However, tell both organisations about any change in your working pattern, particularly if fostering leads you to reduce your hours or leave employment.

When reviewing a workplace pension connected with another job, check:

• whether you remain eligible to participate if your hours or earnings change;
• how much you and your employer contribute;
• what happens to the pension if you leave that employment;
• which investment choices and charges apply; and
• what death benefits and beneficiary nomination options are available.

If fostering is your main occupation, a personal pension may be the more relevant option. Personal pensions are arranged directly by an individual with a pension provider, rather than through an employer. Depending on the product and provider, options may include a personal pension, stakeholder pension or self-invested personal pension. These products differ in investment choice, administration and charges, so compare the terms carefully and consider regulated financial advice if you are unsure.

One practical difference is that there is normally no employer contribution attached to fostering payments. Any contribution you make to a personal pension therefore needs to be included in your own household budget. Base the amount on what you can maintain alongside the variable costs of fostering, rather than choosing a contribution that could become difficult to sustain. You can review the amount if your circumstances change, but check the provider’s rules before altering or stopping payments.

Fostering income can also affect how a pension provider assesses contributions and tax relief. Foster carers should keep clear records of fostering payments, allowable expenses and pension payments, and check their position with an accountant or HM Revenue & Customs where necessary. Tax treatment depends on your circumstances and current rules, so information about pension tax relief should not be treated as a substitute for individual advice.

Before applying for a personal pension, ask the provider for a full illustration of charges, including any fees for setting up, managing, transferring or changing the pension. Check whether the pension is flexible enough for periods when your fostering income or other income changes. A low contribution can still be useful if it is affordable and maintained, but the suitability of a pension depends on your retirement objectives, timescale and wider financial position.

The best starting point is to map all your existing arrangements: workplace pensions from current or previous jobs, personal pensions and any other retirement provision. Obtain up-to-date statements and check whether old pensions can remain where they are, be combined or transferred. Do not transfer a pension simply because it appears convenient; valuable guarantees or benefits can be lost, and a regulated adviser can assess whether a transfer is appropriate.

Your fostering service can explain the payment arrangement used for foster carers and provide relevant documentation. It cannot automatically turn fostering payments into pensionable salary unless the relationship is structured as employment. For a decision about contributions, investment choices or transfers, use the scheme information and seek advice based on your own income, dependants, debts and retirement plans.