How does maternity leave affect my pension?

Having a baby is an exciting and busy time, and focusing on your pension can often slip to the bottom of the to-do list. However, taking a moment to check how maternity leave impacts your pension is a great way to protect and build your long-term wealth.

Understanding the rules is crucial, as a recent Sky News report revealed that some women are missing out on thousands of pounds in pension contributions from their employer, often without even realising it.

Pension contributions from your employer during maternity leave should be based on your full salary, but some employers mistakenly reduce their pension contributions.

In this guide, we’ll unpack the pension rules during maternity leave and explain how to check if you’re getting the right amount paid into your pension.

How does maternity leave affect my pension?

The rules on maternity leave are designed to protect your pension while your pay is reduced.

Although your pension contributions will reduce in line with your pay, your employer’s contributions are based on your full pay.

Assuming you’re entitled to statutory maternity pay, here’s a summary of the pension rules during maternity leave:

• Your pension contributions are based on your reduced maternity pay.

• Your employer’s pension contributions between weeks one to 39 are based on your pay before you went on maternity leave, plus any increases during maternity leave.

• From week 40 to week 52, your employer will stop making pension contributions, unless continuing contributions are agreed in your pension scheme rules.

• Some employers pay in more than the minimum amount, so check out your pension scheme rules and contract.

For example, Lauren plans to take 52 weeks of maternity leave and she earns £500 per week (£26,000 per year). Her pension contributions are normally 3% from her employer and 5% from her salary.

During maternity leave, she receives statutory maternity pay, which is £450 a week for six weeks (90% of £500) and then £187.18 for a further 33 weeks. Between 40 and 52 weeks, she is unpaid.

Her own pension contributions reduce in line with her maternity pay. She continues to pay in 5% of her reduced pay - £22.50 for 6 weeks and then £9.36 for a further 33 weeks.

Her employer’s pension contributions are based on her full pay of £500 per week - £15 each week during the first 39 weeks of maternity leave (£500 x 3%). Between weeks 40 to 52, she receives no employer pension contributions.

What happens to my pension if I don’t get statutory maternity pay?

If you don’t get statutory maternity pay, the rules are slightly different.

You are not required to make any pension contributions, but your employer’s contributions from weeks one to 27 will be based on your full pay before you went on maternity leave.

Contributions after week 27 are only payable if your employer offers enhanced terms in their scheme rules or your contract.

What happens to my pension if I stop making contributions?

You should be careful because if you stop making pension payments, it means your employer won't be required to contribute. 

Unless you are struggling to afford it, keeping up with your pension payments is very important. It’s actually a great deal as your employer will continue paying the full amount, while your contributions reduce.

How do I know if my pension payments are correct?

A recent Sky News report revealed that some employers misunderstand the rules. They based pension contributions on reduced pay during maternity leave, instead of full pay, which could mean some women miss out on thousands of pounds in their pension.

You can check your pay slips and pension statements and compare them to previous pay slips to check what pension contributions are made by your employer. If you think you might have received the wrong amount, contact your HR department.

How does salary sacrifice affect my pension during maternity leave?

If you pay into your workplace pension through salary sacrifice, you could end up with higher employer contributions when you go on maternity leave. That’s because pension payments under a salary sacrifice arrangement are counted as employer contributions. 

Salary sacrifice works by exchanging some of your salary for additional employer contributions, allowing you to save on both income tax and national insurance on those pension contributions.

Because your pension contributions are counted as employer contributions, your pension contributions will remain the same from weeks one to 39 of your maternity leave.

For example, Charlotte pays £200 each month into her workplace pension, and her employer contributes £200. After filling in the salary sacrifice forms, the whole £400 contribution is counted as her employer’s contribution.

She goes on maternity leave and continues to receive the full £400 pension contribution from weeks one to 39 during her maternity leave.

What questions to ask before going on maternity leave

Before you go on maternity leave, it’s important to understand what you’re entitled to. The government sets minimum requirements for employers, but some have more generous benefits. 

Your employer is required to write to you within 28 days of receiving your notification of maternity leave. Their letter will specify the amount of statutory maternity pay you will receive, and when it will begin and end.

It’s important to remember that you’re still employed during your maternity leave, so you can ask your employer any questions.

Here are some things to ask:

• What will my maternity pay be while I’m on maternity leave?

• What will be paid into my pension during maternity leave?

• Is there enhanced maternity pay, and will I lose some of this pay if I don’t return to work?

I think I am missing maternity pension payments. What should I do?

If you think you have missed out on pension payments, you’re entitled to check with your employer’s HR department.

If there is still an error, you can complain to the Pension Ombudsman.

Speak to a financial adviser

Keeping an eye on your pension is vital, especially when you have a change in circumstances, such as going on maternity leave.

Speaking to a financial adviser will help you keep your long-term financial plans on track.

You can make a plan to catch up on any lost contributions and make sure your investments are working hard for you.