If you decide to take parental leave (maternity leave, paternity leave or adoption leave), you should remain a member of your workplace pension scheme, and you and/or your employer will continue to make contributions, unless you decide to stop contributing. If you do stop contributing, your employer will also stop their contributions and you will be treated as a having left the scheme.
If you’re 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’re a member of a defined contribution pension scheme, you continue to pay contributions into the scheme while you’re on paid parental leave. Your employer’s contributions are based on your pensionable earnings before you started the parental leave, while your contributions are based on your actual earnings during the parental leave. If your employer matches your contributions, they must continue to match the same level of contributions that you were paying before the parental leave started.
If you decide to take a period of unpaid leave after your paid parental leave, you don’t need to continue contributing during the period of unpaid leave. Your employer may also cease contributing, unless your contract of employment states otherwise. When you return to work, you (and your employer) may be able to pay extra contributions, depending on the scheme’s rules.
Having children can significantly affect the gender pay gap and your final pension pot.
Data from The Chartered Insurance Institute shows that the average pension pot of a 65-year-old woman is £35,800, just one fifth the size of the average man’s pension at the same age.
Earlier in March, research from Now Pensions and the Pensions Policy Institute revealed that the average annual private pension income for men aged 65 and over is £8,620, compared to just £3,920 for their female counterparts.
While the 8.9 per cent gender pay gap is partially responsible for this disparity, national IFA LEBC stated that the ‘motherhood penalty’ is also to blame.
This is because 27% of new mothers take an extended career break to care for their children, compared with 2% of fathers.
If you decide to take a period of unpaid leave after your paid parental leave, your unpaid leave doesn’t count as pensionable service, but your service before and after the period of unpaid leave is treated as continuous service. When you return to work, you can pay additional contributions to cover the period of unpaid leave when you weren’t contributing. Your employer may also cease contributing, unless your contract of employment states otherwise.
The advice to working women it to remain in employer’s pension schemes during maternity leave, continue to pay into pensions during extended periods of leave and request to join employer schemes even if they earn a salary of less than £10,000.
You should also apply for child benefit, claiming marriage allowance and taking advantage of government childcare subsidies where possible.
Steps like these could be essential to bolstering mothers’ pensions while the disparity between their savings and those of fathers exists, which is especially important when you consider the fact that women tend to outlive men.
Some groups are taking action to try and reduce or eliminate the gap between men and women, with a number of financial services providers having agreed to lobby the government to make changes to auto-enrolment, pension freedoms and pension sharing rules in November 2019.
The group of insurers, professional bodies, guidance services and financial advisers released a manifesto that argued that, without intervention through gender pay gap reporting, it could take until the year 2100 for women to reach pension parity.