Finance expert explains considerations and pitfalls when planning a career break

More people may consider taking a break at some point in their career as work and retirement patterns change, but it pays to plan ahead, according to an insurance and wealth provider.

Previous research for Canada Life, among more than 3,200 adults in February, indicates that nearly half (49%) believe it likely that, with increasing longevity, they will have to adjust their plans for work and retirement by taking a sabbatical or career break.

A quarter (26%) have already taken some type of extended leave.

John Chew, a technical specialist in pensions, tax, trusts and estate planning at Canada Life, said: “Taking a career break or sabbatical can be a fantastic investment in your wellbeing or career development – but it pays to plan.”

Here are some tips from Mr Chew for people to be mindful of their finances while planning a career break:

– Have a clear plan

Mr Chew said: “Before checking your workplace policies on sabbaticals or career breaks, speaking with your manager, or HR representative, it is important to get clear on why you want to take time away from work in the first place.

“As our life expectancies increase, so too may the desire to have time away from work to pause, retrain or pivot. But the decision to take a career break or sabbatical shouldn’t be made on a whim. While they can provide you with both long and short-term benefits, they need to be carefully planned and thought through in advance.

“For some this may be a necessity – to support or care for family for example.

“For others it may be that a total change of scenery through travel is what is needed to help their mental wellbeing. Some may be looking to use time to re-evaluate their careers and go back to education, for example.”

He added: “Decide what you want from your time – whether that’s travel, volunteering, upskilling, or simply rest. Having a plan makes your return feel like a step forward, not a reset.”

– Build a pot of money

Mr Chew said: “Your income may pause while off, but your bills may not.”

He suggested starting saving six to 12 months in advance as a minimum, although individual circumstances will vary.

Mr Chew said people should calculate the essential costs that will need to be paid, such as a mortgage or rent, utilities, food and insurance.

Then they can set up an additional separate fund that can be used for expenses that will be needed on top, for example, for travelling or education, he suggested.

Mr Chew added: “It’s a good idea to add in a buffer for surprises too; breaks often come with costs you may not have anticipated from the start.”

– Tell relevant organisations early

Mr Chew said: “By notifying them early and submitting the necessary paperwork, you can avoid unnecessary costs and administrative headaches during your time away.”

– Protect your entitlements

Mr Chew said: “Firstly, regardless of whether you are employed by a company, or work for yourself, you will hopefully be contributing to a pension scheme.

“With workplace pensions, employers are required to pay a minimum contribution into a workplace pension scheme if you meet the eligibility criteria, but this usually stops during periods of unpaid leave.

“If you can, keep up your own contributions to whatever scheme you have in place, workplace or self-invested. Compound growth makes even small amounts worthwhile.”

He also said some people may consider paying voluntary national insurance (NI) contributions, which could help towards their state pension, to avoid any gaps.

– Stay on top of tax rules

Mr Chew said: “If you earn less than usual in the year of your sabbatical or career break, you may end up overpaying in tax, especially if you take your break partway through a tax year, so it’s sensible to contact HMRC (HM Revenue and Customs) to check your PAYE (pay as you earn) code or claim a rebate at year-end.”

He added: “If you plan to take on work while abroad, you’ll need to confirm if your employer is comfortable with this and be aware that it may trigger local tax obligations in the country where you’re working.”

– Confirm your return and benefits in writing

Mr Chew added: “Before taking time away from work, it’s a good idea to agree your return date or phased return in writing with your employer.

“You should also clarify how your break affects benefits like holiday accrual, private healthcare and bonuses. Written agreements can give you both peace of mind and offer some protection if policies change while you’re away.

“If you pay for workplace benefits yourself, it may be tempting to cancel these policies while you are off to save extra money. However, it’s worth remembering that you pay for these benefits for a reason, and this won’t necessarily change while you take time from work.”

– Stay professionally connected

Mr Chew said: “It’s possible to avoid turning a sabbatical or career break into a ‘career gap’.

“If you can, staying visible and connected can help with the eventual return to work. Things like updating your LinkedIn, attending an occasional webinar, or maintaining informal contact with colleagues may be useful.

“Leaving on a good note by documenting your processes or helping with handovers before you go, can also help with the transition back to work. Have a conversation with your employer about how and when you may want to keep in touch too.”

People’s individual situations will vary and some people may have other considerations or want to consider taking financial advice about their own circumstances.