Personal Finance

Pensions doctor: 'I want to have a baby – how do I make sure my pension doesn't suffer?'


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I’m currently 29 years old, and thinking about starting a family in the next few years. The only information I ever see regarding pensions and being a mother, is that women don’t save enough to have a reasonable retirement. How do I fix that? 

I currently have a defined contribution scheme that I contribute to via salary sacrifice and employer contribution totalling 14pc of my salary. I’d like to be able to retire at 58 given my partner is a little bit older than me. 

I get six months paid maternity leave, but I would like to take a full year per child, so even if I go straight back to work full time with no salary issues I’ll be missing out on contributions, and I can see myself wanting to work part time at least for a while.   

TY, London

It’s fantastic that you’re thinking ahead; this should put you in a good position to retire when you want to. Women on average have far less in their pensions than men, leading to a significant gender pension gap. A woman’s ability to save for retirement is often interrupted by career breaks, such as raising a family or caring for elderly parents, making it difficult to catch up.

Women are also more likely to work part-time after starting a family. And on average they live longer than men. 

Gaps in your pension savings history can leave you worse off in retirement. The key is to plan ahead to minimise those gaps so you’re able to build up enough savings to give you the financial flexibility you’re aiming for in later life.

Pay during maternity leave

Although underpinned by statutory rules, your specific terms and conditions for maternity leave and pay will depend on your employer. But in general, you can take up to 52 weeks of statutory maternity leave and, subject to eligibility, will receive statutory maternity pay for up to the first 39 weeks from your employer.

As a minimum, through SMP, you’ll get 90pc of your average weekly earnings (before tax) for the first six weeks, and £151.20 or 90pc of your average weekly earnings (whichever is lower) for the next 33 weeks. 

Your employer may pay more than the SMP minimum amount, so you should check your employment contract to understand your own situation. If you decide to take the full 52 weeks of leave, the last 13 weeks may be unpaid.

If you’re not eligible for SMP you may qualify for maternity allowance.  You can find details here.

You may be able to take some of your leave as shared paternal leave with a partner. 

Pension contributions during maternity leave

There are two periods of maternity leave, ordinary maternity leave, which covers the first 26 weeks, and additional maternity leave, which covers the last 26 weeks. 

During ordinary leave, you’re entitled to continue as a member of your employer’s pension scheme and your employer is required to make contributions as if you were working normally and receiving normal pay, including any pay rises due during the period of leave. Any contributions you make personally are based on the actual pay you receive, which may just be SMP. 

Pension Pot Calculator 2019

During additional leave, pension contributions payable depend on whether you’ll be paid or not. During paid AML, whether your pay is SMP or a higher contractual amount, you and your employer will continue to make pension contributions as though you were on ordinary leave.

During any unpaid additional leave, there is no statutory requirement for pension contributions to continue to be paid by either you or your employer. 

As your pension contributions are being made via salary sacrifice, which means your employer is effectively paying these, the situation is slightly different, and I’ve covered this below.  

Pension contributions and salary sacrifice

Salary sacrifice is an agreement between an employer and employee to reduce an employee’s cash pay, usually in return for a non-cash benefit, such as pension contributions. 

As you’ve reduced your gross pay through salary sacrifice, any contractual maternity pay or SMP you are entitled to may be calculated based on this lower amount. Check your contract of employment, though, to see if your employer uses a higher "reference salary" for any contractual maternity pay.  

As long as you don’t cancel your salary sacrifice arrangement, your employer will continue to pay the same amount into your pension during your paid maternity leave based on your normal level of pre-maternity leave pay. During any unpaid additional leave, there is no statutory requirement for pension contributions to continue to be paid by your employer.

Ask Kate a question | The Telegraph’s pensions doctor

Cancelling salary sacrifice arrangements

Pregnancy is classed as a "lifestyle change" by HM Revenue & Customs, meaning you could choose to opt-out of your salary sacrifice arrangement. If you opt-out, your pre-sacrifice position normally applies. This could mean you’ll start paying pension contributions alongside employer contributions during paid maternity leave. 

If you do cancel your salary sacrifice arrangement, for example to increase your pay during maternity leave, it’s important that you remain in your workplace pension scheme, and pay your own pension contributions so that you continue to benefit from your employer’s pension contributions. 

Making up the gaps

If you think you will have breaks in your pension funding, it’s possible to make up these gaps. Think about increasing your pension contributions before going on maternity leave; this may be extremely valuable if your employer matches your higher contributions.

Or when you return to work consider paying additional contributions to cover periods of unpaid leave and to make up for periods when your own contributions were lower. If you cancelled your salary sacrifice arrangement you may wish to restart it to boost your pension savings. 

And if you do return to work on a part-time basis, as your contributions are based on your salary, this will result in lower pension contributions. You could therefore think about increasing your pension contributions when you can afford to.

Finally, the best way forward is to plan, regularly review how your pension is doing and adjust your contributions and investment choices when necessary to keep yourself on track to retire at age 58.


Reader Service: Try our Pension Advice Service today and get a free recommendation on whether we can improve your pensions. Capital at risk.


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