When I’m on maternity leave, do I or the company have to pay my pension contributions until I come back to work if I want them to stay at the same level?
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Having a baby: What happens to women’s pension contributions while they are on maternity leave
Steve Webb replies: Because employment contracts and pension arrangements can vary considerably from firm to firm, it is always worth talking to your own employer to find out exactly where you stand.
But I can give some general information about how I would expect things to work in most cases.
The key question is whether or not you are being paid by your employer at various points during your maternity leave and, if so, at what rate. This is because most of the rules around pensions are based on how much you are earning in any given week or month.
Let us start by thinking about the start of your maternity leave, and work on the assumption that you are entitled to statutory maternity pay (SMP).
You can get up to 39 weeks of SMP but the rate changes after six weeks. For the first six weeks you are entitled to 90 per cent of your average weekly earnings (before tax). For the rest of the period (up to 39 weeks) you get the lower of £139.58 or 90 per cent of your average weekly earnings.
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This means that higher earners may see a significant drop in their rate of SMP after the initial period. You can read more about the rules here.
For pension purposes, receiving SMP is the same as being paid a regular wage by your employer. If you normally pay a percentage of your wage into a pension scheme, you would continue to pay that percentage out of your SMP.
And if your employer normally pays a percentage of your wage into a pension, that percentage would continue but based on the amount you were earning before you started your maternity leave (which will usually be higher).
Therefore, your personal contributions will usually fall, unless you actively choose to boost them yourself, but your employer’s contributions will not.
It is worth bearing in mind that SMP is a legal minimum. Some firms will pay you at a higher rate – for example, full pay for three months or six months – and some firms will pay for a longer period.
But the basic principle is the same – for pension purposes, pay is pay, whether it is from SMP, SMP topped up by additional pay from your employer, or regular pay.
Of course, some mothers will continue to stay on maternity leave for more than 39 weeks. In general, you have a legal right to 52 weeks of maternity leave, which means that the final 13 weeks may be unpaid, so you will be making no personal contributions during that period unless you actively choose to do so.
Also, in this case, there would be no duty on your employer to pay into a pension scheme for those 13 weeks.
Not all working women would qualify for Statutory Maternity Pay if they have a child. Those not eligible include most self-employed women, those who have only recently started employment, or those on a low wage (averaging under £112 per week over an 8 week period).
The Government has information on who is eligible here. Women may instead qualify for something called Maternity Allowance, which you can find out about here.
However, as this is a social security benefit rather than pay from your employer, you do not build up any private pension rights in respect of payments of Maternity Allowance.
One final thing to bear in mind is that it is always worth your while claiming Child Benefit when you have your first child.
For some individuals or couples, where one parent earns more than £60,000, there is something called a ‘High Income Child Benefit Tax Charge’ which can wipe out some or all of the value of your Child Benefit through a matching tax bill.
But even if you get no benefit in the short-term from claiming, you would be protecting your state pension rights.
This is because those who claim Child Benefit get valuable National Insurance credits towards their state pension, whether or not they are earning.
This is important because if you do not sign up for Child Benefit – whether it’s because you won’t receive any actual payments, or for any other reason – you will lose these credits.
They fill in gaps in your NI record during any years while you are caring for your children rather than working, and thus will entitle you to a higher state pension when you come to retire.
Anyone with children who has not signed up for Child Benefit should therefore do so immediately. You will receive credits towards your state pension from that point onward, but they will only be backdated for three months.