Mothers on maternity leave could face significant gaps in their pensions due to some employers unintentionally basing pension contributions on statutory maternity pay rather than their full salary. This issue could lead to pension holes of up to £12,554 by retirement, particularly for higher earners.
Camilla Esmund, senior manager at interactive investor (ii), warned that while it is unclear whether this is a widespread issue, it highlights the importance of engaging with pension plans. She said: “The rules are supposed to ensure women still get a full pension payment even while their pay is reduced, but in some cases, it seems this isn’t happening, so it is important that women check.”
For example, calculations found a woman earning £35,000 could face a pension gap of £822 over 39 weeks if her employer mistakenly bases contributions on maternity pay instead of her full salary.
Higher earners, with salaries of £50,000 or £80,000, could face gaps of £1,307 and £2,276, respectively. Due to the effects of investment growth, these gaps could grow to £4,534 and £12,554 by retirement.
Ms Esmund added: “These potential pension errors are yet another barrier when it comes to closing the gender pension gap, with many women struggling to build retirement wealth.”
Women typically have 35% less pension wealth than men due to taking time off for child-rearing and often working part-time. Missing pension contributions during maternity leave could leave them with thousands less by retirement.
To avoid missing out on valuable pension contributions, Ms Esmund advised women to ensure they are contributing to their pension during maternity leave. “It’s crucial to carry on paying into your pension whilst on maternity leave, as your employer may not pay in at all if you stop contributing.”
Employer contributions should continue based on the full salary before maternity leave, but employees’ contributions will be based on their reduced maternity pay.
Ms Esmond encouraged women to ask their employer’s HR department key questions before going on maternity leave, such as:
- What employer pension contributions will I receive on maternity leave, and is this based on my full pay before maternity leave?
- How much will I pay each month in employee contributions?
- Will you stop employer contributions if I stop paying in?
- Do you pay employer pension contributions after 39 weeks of maternity leave?
