Is there a pension scheme for foster carers?

The practical position is that pension planning sits alongside fostering rather than being built into the fostering role. A foster carer may therefore need to consider separate arrangements for both their State Pension and any private or workplace pension they want to build.

State Pension entitlement

Your State Pension is based mainly on your National Insurance record, not on whether you belong to a foster carer pension scheme. The number of qualifying years you have, and any gaps in your record, can affect what you may receive when you reach State Pension age.

Foster carers should check how their fostering circumstances affect National Insurance. Depending on your wider work and income position, you may pay National Insurance through another job, make voluntary contributions, or qualify for National Insurance credits. The rules can depend on your circumstances, so check your record through the relevant government service or ask a regulated adviser before deciding whether to make additional contributions.

Personal pensions

A personal pension is a common way for a foster carer to save independently of their fostering agency. You can normally choose from different types of personal pension, including a standard personal pension or a self-invested personal pension. They differ in investment choice, charges, administration and the level of involvement required from you.

Contributions are invested for the future rather than held as ordinary savings. Their value can rise or fall, and charges can reduce the amount available later. Before choosing a plan, consider:

• how much you can contribute regularly or occasionally;
• whether the provider accepts irregular contributions;
• the charges and investment options;
• when and how you may access the pension under the rules in force at the time; and
• what happens to the pension if you stop fostering, change agency or take other employment.

Tax treatment of fostering income

Fostering payments have specific tax rules. Qualifying care relief can reduce the amount of fostering income treated as taxable, but this does not automatically answer how much tax relief you can receive on pension contributions. Pension tax relief is linked to your circumstances, including relevant earnings and the type of contribution made.

This means a foster carer should not assume that every pound of fostering payment will be treated in the same way as salary for pension purposes. The most suitable contribution level may be different for someone who has employment or self-employment alongside fostering, someone whose main income is from fostering, and someone with little or no relevant taxable earnings.

Keep records of fostering payments, allowable expenses, other income, National Insurance payments and pension contributions. A financial adviser or tax adviser can explain how the rules apply to you and whether contributions should be made personally or through another arrangement. Tax rules and pension allowances can change, so use current professional guidance when making a long-term decision.

Workplace pensions and other employment

If you also work for an employer, you may be eligible for that employer’s workplace pension under the ordinary workplace pension rules. This is separate from your role as a foster carer. Check whether contributions are being deducted from your pay, whether your employer contributes, and whether changing your hours or employment could affect the arrangement.

Having more than one pension is possible. However, several small pots may be harder to monitor, and transferring them is not always beneficial. Compare charges, investment choices, guarantees, benefits on death and any exit penalties before moving pension savings. Do not transfer a pension simply because consolidation appears more convenient.

What a fostering agency does and does not usually provide

Fostering allowances and other payments are intended to support the costs and responsibilities of caring for a child. They should not automatically be treated as an agency pension contribution. Ask the agency to explain its payment arrangements and whether any separate pension support exists, rather than assuming that an amount is being paid into a pension on your behalf.

At Become A Foster Family, the local team can help you understand the financial information connected with fostering and identify questions to raise with a qualified pension or tax adviser. This support is intended to improve your understanding; it does not replace regulated financial advice or personalised tax advice.

A sensible planning process

• Check your State Pension forecast and National Insurance record.
• List any existing workplace, personal or occupational pensions, including their charges and current values.
• Separate fostering payments from other income when reviewing your tax position.
• Work out what contribution is affordable without relying on an allowance that may change.
• Ask a regulated adviser how tax relief, investment risk and access rules apply to your circumstances.
• Review the plan after major changes, such as taking employment, stopping fostering, changing agency or reaching a new stage of retirement planning.

There is no single pension arrangement that suits every foster carer. The right approach depends on your National Insurance history, other work, fostering-related tax position, existing pension savings, affordability and retirement goals.