NHS Maternity Pay - Spreading out payments, effect on NI / tax / pension

JamieG24

Hi all, my wife works for the NHS and will be going on maternity leave at the start of 2016. She plans to take the full year.

Her HR department have offered to spread her maternity pay equally over 12 months, so instead of getting full pay for 3 months, half pay + SME for 3 months, SME for 3 months, and then nothing for the remaining 3 months, she'd get it evened out over the full period.
(I'm not sure if they take SME into account with the spreading out, or just her NHS pay).

I'm unsure what the tax implications of spreading out payments would be. My assumptions are below, but if anyone knows for sure I'd be grateful if they could let me know.

My guess:
If it is treated exactly the same as standard pay then it's unlikely to affect income tax as she'll remain in the 20% bracket each tax year whatever - over the two tax years she'll pay the same amount of income tax.

But NI is calculated based on weekly pay, and so by spreading out the payments she'll pay a couple of hundred pounds less over the full period (as if it were not spread out, there'd be 6 months of higher payments, and 6 months of no payments). [Even in the non spread-out case, she'd still get contributions towards state pension, so a no payment period would not matter].

Pension contributions are optional during maternity leave, but makes sense to us to continue them. They're a fixed % so spreading out shouldn't make a difference, except, (I think) during the last part of the maternity year. If pay was not spread out, she would effectively be on unpaid leave at the end. During unpaid leave she would still be required to contribute to the pension scheme, so unless she opted out for just the last months, I think more would be paid in overall (the full amount in the first months + a minimum top up in the final months).

It's all a bit of a minefield, but if anyone knows what the case really is, I'd be very grateful to hear!

Many thanks,
James