Maximising pension contribution during maternity leave

Imelda

Hi all,

A couple of questions - I am going on maternity leave next month and will take the full year. My earned income will be approx £3k for the two months I work in the 2017/18 tax year.
I get SMP which works out at £6,400 for the rest of the year.

After woefully neglecting my pension for a few years my husband and I are trying to maximise tax savings by contributing to my pension.

1. I assume I can only contribute up to my earnings of £3k to get tax relief?
2. My employer currently contributes 1% to my pension - I assume that this will stop during mat leave?
3. I was thinking about opening a LISA and contributing the £4k this year as additional pension funds. I would max out my ISA anyway this tax year. Thoughts?
4. Any other suggestions?

I currently have £81k in my pension pots and I am 36. The aim is to get my pot up to £400k by 60. The plan is to contribute my whole salary for the next 5 years at least.

xylophone

https://www.moneyadviceservice.org.uk/en/articles/protecting-your-workplace-pension-after-having-a-baby

Pension contributions while you’re on maternity leave

If you’re in a workplace pension scheme and your employer contributes to it, they must continue to do so while you’re receiving Statutory Maternity Pay.

That’s up to 39 weeks, and, possibly longer if your employer offers it in your contract.




you can still receive tax relief on pension contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, subject to your annual allowance.[/B]


https://www.ipse.co.uk/sites/default/files/documents/futures/Pensions-Contributions-v1.pdf

So, in practice this means the following taxable income
counts as relevant UK earnings: • Employment income - including salary, wages, bonuses,
overtime, commissions;
• Benefits in kind for directors or employees earning over
£8,500 a year (NB: the £8,500 threshold is to be abolished
from 6 April 2016);
• Statutory sick pay, statutory maternity pay, statutory
paternity pay, and statutory adoption pay payable by the
employer are all treated as remuneration derived from
employment;

PeacefulWaters

In point 2 don't assume, find out.

And find out if increasing your contribution now will also increase the employer contribution.

kidmugsy

Imelda wrote: »

I am going on maternity leave next month and will take the full year. My earned income will be approx £3k for the two months I work in the 2017/18 tax year.
I get SMP which works out at £6,400 for the rest of the year.

1. I assume I can only contribute up to my earnings of £3k to get tax relief?

2. My employer currently contributes 1% to my pension - I assume that this will stop during mat leave?

3. I was thinking about opening a LISA and contributing the £4k this year as additional pension funds. I would max out my ISA anyway this tax year. Thoughts?

1 you can contribute heaps: see
http://www.rossmartin.co.uk/private-client-a-estate-planning/income-losses-claims-reliefs/1034-relevant-earnings-for-pensions-purposes

2. No idea: why not ask them?

3. A LISA might do you very well. In your shoes I'd probably wait until near the end of the tax year to subscribe, so that you have max choice of providers. The govt contribution doesn't get added until near the end of the year (for 17/18 only).

Imelda

Ah thanks! I did not realise SMP would be included - wow,
ALL my assumptions about pensions have been wrong so far

My employer does not match contributions, they do the bare minimum to keep within the law (small company). I shall ask whether they continue making payments during maternity leave (not that it amounts to much!)

Good tip about waiting for more providers re LISAs, thank you

HappyHarry

Re point 2.

Your employer must continue making the same level of contribution to your pension that they did whilst you were working. This is mandatory for the 39 weeks that you are entitled to some form of payment for. This comes under discrimination laws rather than pension laws. You do not have to contribute once your earnings (including SMP) fall below the necessary threshold.

liviboy

HappyHarry wrote: »

Re point 2.

Your employer must continue making the same level of contribution to your pension that they did whilst you were working. This is mandatory for the 39 weeks that you are entitled to some form of payment for. This comes under discrimination laws rather than pension laws. You do not have to contribute once your earnings (including SMP) fall below the necessary threshold.

Sorry to hijack slightly the thread...can you clarify does this mean the same % or the same £ value. E.g. If an employer contributes 12% and whilst at work this works out at £275, do they need to continue to pay £275 per month for the 39 weeks? Or would it be 12% of whatever has been earned (e.g. 12% of SMP)?

Having done some digging it looks like it should be the full amount prior to maternity leave starting...but then there are other links which state the opposite so I'm a bit confused...

Thanks in advance.

HappyHarry

Same value. So in the case above, the employer must continue to contribute £275.

Otherwise the employer would be seen to be removing a benefit from the employee when are on maternity leave.

liviboy

HappyHarry wrote: »

Same value. So in the case above, the employer must continue to contribute £275.

Otherwise the employer would be seen to be removing a benefit from the employee when are on maternity leave.

Thanks or clarifying.

I wonder if you could take a look at this screenshot:

These are the pension contributions of my wife - she was on Mat leave from the very end of December until the very end of October.

Note that the dates are in arrears to the previous month (so January's credit is from December's pay).

My wife was on full pay for January - April and then went down to SMP with a final £0 payslip come October (returned to work in November).

As you can see, the company pension contributions shifted from £275 to around £75 a month.

So with that in mind, was the pension contribution underpaid and, if so, by roughly how much so we can approach the employer?

39 weeks would take us up to September so I estimate that to be around £850 and wondered if you could check the figures as a ballpark...don't want to look an idiot after all.

Many thanks

HappyHarry

I would suggest that you both have a look at your wife's contract, and then read through this from TPAS: https://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/parental-leave

A gentle enquiry to your wife's HR department might not go amiss.

liviboy

HappyHarry wrote: »

I would suggest that you both have a look at your wife's contract, and then read through this from TPAS: https://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/parental-leave

A gentle enquiry to your wife's HR department might not go amiss.

Thanks for that - I'd actually read that link prior to posting after seeing the original comment and it is what made me post :-)

We've also already read the contract and there is nothing at all in the contract other than that a pension is offered and to ask HR for more details.

The pension scheme booklet only talks about continuing to pay pension contributions whilst on SMP but this only relates to the employee contribution, nothing at all about the employer contribution.

Before even a friendly email can be sent we need to be a bit more certain that something is amiss so any other thoughts would be very gratefully received.

Thanks again :-)