It is no secret that women often face more career interruptions than men, particularly when starting a family, with maternity leave being a primary example. While taking time off to care for a newborn is essential and precious, it significantly contributes to the gender pension gap—the disparity in private pension savings between men and women at retirement.
The Stark Reality of the Gender Pension Gap
Recent government data from 2020 to 2022 reveals a concerning disparity: the median pension for women stands at £81,000, compared to £156,000 for men, marking a 48% gap. This inequality underscores the financial challenges mothers may encounter later in life due to career breaks.
Unlocking the Pension Pot Hack
Fortunately, there is a straightforward yet often overlooked pension loophole that can help mitigate this shortfall. When you go on maternity leave, your employer is legally obligated to continue pension contributions based on your pre-maternity salary. This rule applies even if your income drops to statutory maternity pay, which is currently £187.18 per week.
Maximising Benefits Through Salary Sacrifice
If your workplace pension operates via a salary sacrifice scheme—where you reduce your gross salary or forgo a bonus in exchange for increased pension contributions—your employer must cover both the employer and employee portions. For instance, if you boost your monthly pension contribution to £300 through salary sacrifice before leave, your employer would pay the full £600 once leave begins, regardless of your reduced take-home pay.
Key Considerations and Potential Pitfalls
It is crucial to be aware that this requirement does not extend to periods of unpaid maternity leave. In the UK, mothers can take up to 52 weeks of leave, but statutory pay only covers the first 39 weeks, leaving the final 13 weeks unpaid. During this unpaid phase, pension contributions may halt entirely, potentially costing hundreds in lost retirement savings.
While some companies offer enhanced maternity packages with full pay for 52 weeks, this is not standard practice. Therefore, it is advisable to discuss and adjust your pension contributions with your employer as early as possible when planning maternity leave. Although this might mean sacrificing some pre-birth income, it can significantly boost your pension during your time at home with the baby.
Steps to Address Underpayment Issues
If you suspect your pension contributions were incorrectly matched to your maternity pay rather than your pre-leave salary, follow these steps to seek resolution:
- Review Your Contract and Pension Policy: Check your employment agreement and workplace pension documents to confirm the agreed terms for contributions during maternity leave.
- Contact HR or Payroll: Mistakes can occur, so a direct conversation may quickly resolve the issue without formal procedures.
- File a Formal Complaint: If internal discussions fail, submit a written complaint detailing the discrepancy and referencing relevant pension regulations.
- Seek External Advice: Consult resources like unions, ACAS, or MoneyHelper for free guidance and support in resolving pension disputes.
By understanding and utilising this pension loophole, mothers can take proactive steps to safeguard their financial future, balancing the joys of new parenthood with long-term security.
