Mum's money matters: maternity leave

Maternity Leave and your entitlement

The hidden cost of motherhood

So, you’re having a baby – congratulations! Motherhood is a wonderful thing and before you know it, you’ll be enjoying all the joys associated with having a little one in your life. While the physical and emotional impacts of motherhood are well documented and understood, are the financial aspects of motherhood given enough attention?

Let’s face it, babies are expensive. Who knew that someone so small could cost so much? Nappies, clothes, prams, cots – the list is endless, not to mention childcare.  

As a mum of two, I know all too well about the costs of kids – and those costs only increase as they get older. In this article I look at one of the hidden costs of motherhood - outlining what you can expect when it comes to your pension and pay.

Maternity leave

From April 2015, parents were given the right to share 12 months of leave after the birth of a child. The shared parental leave policy aims to help women return to the workplace earlier and men to become more involved in caring for their little one. While relatively new in the UK, the Scandinavians have been at it for a while, with the policy introduced in Sweden in 1973.

In the UK, the first two weeks of maternity leave are mandatory, but the rest can be transferred to their partner should they choose. The first 39 weeks will be paid at the statutory minimum, or above. The next 13 weeks is unpaid.

Maternity Pay

Maternity leave payment terms and conditions often depend on your employer, but, you can take up to 52 weeks. Generally speaking, you will receive an income for the first 39 weeks from your employer. Statutory Maternity Pay (SMP) sets the minimum for this.

If you are eligible to receive SMP as a minimum, you will get 90% of your average weekly earnings for the first six weeks of your maternity leave, then for the next 33 weeks it falls to £140.98  per week (2017/18) or 90% of your average weekly earnings, whichever is the lower. For many people, this can be a steep fall in income.

It’s possible that your employer may pay more than the statutory amount, so it’s essential that you find this out, before you go on maternity leave. You will only qualify for statutory maternity leave after a certain amount of service and earnings, so it’s also important that you find this out too.

What happens to your pension when you are on maternity leave?

Thanks to auto-enrolment, the vast majority of working women will be saving something into a pension scheme. The good news is that, during any period of paid maternity leave, you will continue to build up a pension. (If you remain a member of your workplace pension scheme, which I strongly recommend that you do.)

Your employer will continue to pay pension contributions during paid leave as long as you remain in the scheme, based on the salary you received before you went on maternity leave. You only need to pay pension contributions based on your actual earnings during paid maternity leave, so this includes any SMP and any top-up pay from your employer. If your employer matches your contributions, they must continue to match the contributions you paid before your maternity leave started. However, you may not receive any employer contributions during any periods of unpaid leave as there is no requirement for employer or personal contributions to be made during unpaid leave

Returning to work? Think about topping up your pension.

When you decide to go back to work, while your childcare costs may increase, your normal salary will resume. Gaps in pension savings history can leave you worse off in retirement, and while it may seem insignificant now, your retirement income will be important to you when the time comes. If you can afford it, when you return to work, you may wish to think about paying extra contributions to make up periods of unpaid leave – to fill the gap.   

If you are in a defined contributions pension, your retirement income will be dependent on the contributions you and your employer pays in. So it’s important that you try to avoid having too many gaps in your pension contribution history, something you may regret later on in life.

It’s also important to keep in mind that, if you decide to take a full year off work, and stop making contributions to your workplace pension, you might find yourself needing to work longer to make-up the shortfall. That is assuming you remain fit and healthy enough to do so.

Your maternity leave: your earnings

The example below shows that a woman with a gross basic salary of £25,000 paying a 5% contribution to her workplace pension and having it matched by her employer at 5%, who takes a full year of maternity leave and stops her payments during unpaid leave could experience a shortage to her pension pot of £1,200.07.

 

 

A year at work

A year on maternity leave

First 6 weeks

Employer

£144.23

£144.23

 

Employee

£144.23

£129.81

33 weeks

Employer

£793.27

£793.27

 

Employee

£793.27

£232.62

13 weeks

Employer

£312.50

£0

 

Employee

£312.50

£0

Total contributions

 

£2,500

£1,299.93

 

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  1. Find out whether your employer provides maternity pay higher than the SMP.
  2. Consider increasing your pension contributions before you go on maternity leave. Your employer has to continue matching your contributions during paid maternity leave.
  3. Avoid leaving the pension scheme.
  4. Consider paying additional contributions to cover gaps in your contributions after going back to work.
  5. Review your pension payments when you return to work and consider making plans for the future.

For more information on maternity and paternity leave: