Maternity Leave & Your Pension Benefits

Posted: Wednesday August 16 2017

By: Abbie Coleman

If you take maternity leave, your employer is under a legal requirement to continue making payments into your workplace pension on your behalf, for the period in which you are on paid leave.

By Natalie Wright  – Chartered Financial Planner – Mazars Financial Planning Ltd

Maternity Leave & Your Pension Benefits

There are different types of workplace pensions and depending on which type of scheme you are in will determine how the contributions are dealt with during maternity leave. Workplace pensions typically fall into two main categories:

  • defined contribution pension schemes;
  • defined benefit pension schemes

How does this work for defined contribution schemes?

If you are a member of a defined contribution scheme, your employer must continue contributions to your workplace pension for the period in which you are on ‘ordinary maternity leave’ i.e. the first 39 weeks, if they usually contribute to your pension on your behalf. Unless you are in a scheme which doesn’t require you to make personal contributions e.g. Superannuation schemes (known as non-contributory schemes) then you will also be expected to continue making your personal contributions during the first 39 weeks.

Whilst on ‘additional maternity’ leave i.e. from the 39th week onwards your employer may pay into your pension on your behalf; however this is only if you are paid during your additional maternity leave. Your employer is not required to do this by law so you need to check what benefits are offered by your employer.

Your employer has to pay contributions based on your salary before you went on maternity leave, not your actual earnings during your maternity leave.

Personal contributions are based on the actual amount you are being paid during your maternity leave e.g. if you receive 90% of your salary in the first 6 weeks, then your personal contributions will be based on 90% of your salary. If after 6 weeks your salary then reduces to 50%, your personal contributions would then be based on 50% of your salary.

How does this work for defined benefit schemes?

If you are a member of a defined benefit pension scheme, then any periods that you spend on paid parental leave are treated as pensionable service. This means that you will continue to accrue pension benefits, based on the level of your pensionable earnings before you started the parental leave. The contributions that you pay are, however, based on your actual earnings during your parental leave.

If you decide to take a period of unpaid leave after your paid parental leave, this doesn’t count as pensionable service. When you return to work, you have the opportunity to pay additional contributions to cover the period of unpaid leave when you weren’t contributing.

Should I maintain contributions?

You have the choice to decide whether staying in the scheme is the right thing for you; however your pension is a long term savings plan and you should give careful thought before stopping contributions. A break in your contributions, even over a short period of time could have a big impact on how much you need to contribute in the future. So it is important to weigh up the short term gain of stopping contributions versus the longer term gain of building up a retirement fund (you could ultimately miss out on sizeable employer contributions and the additional potential growth over the period in which you are out of the scheme).