Maximising pension contribution during maternity leave

liviboy

I understand you cannot give me advice as such but I think what I'm really looking for is the legislation that my wife can take with her to HR as without the "proof" that we are right and they are wrong it could be difficult to resolve any issue...

Ive found a few links. But nothing seems to give the legal basis for the claims:

It’s not dissimilar if you’re in a defined contribution scheme, except that while you’re on paid leave you’ll continue to make pension contributions based on the actual salary you receive while you’re on maternity leave. At the same time your employer will continue to pay contributions, but based on the salary you would have received had you not gone on maternity leave i.e. they continue as though you’re still on your full salary.

https://www.fidelity.co.uk/investor/markets-insights/financial-planning/true-cost-of-having-a-baby

In a 'money purchase' scheme, your employer should continue to pay the same contributions (i.e. based on your normal pay), but if you only pay reduced contributions based on your maternity pay, then inevitably your pension fund will be a little smaller.

https://worksmart.org.uk/pension-advice/workplace-pensions/your-rights/how-will-maternity-or-parental-leave-affect-my-pension

The employer should pay the contributions based on the employee’s pay before she went on maternity leave, whilst the employee should pay contributions based on the pay that she’s actually receiving (for example Statutory Maternity Pay).

https://thepeoplespension.co.uk/help/knowledgebase/what-happens-to-someones-contributions-when-they-are-on-maternity-leave/

liviboy

Found a link via another forum to this piece of legislation from 2007:

http://webarchive.nationalarchives.gov.uk/+/http://www.berr.gov.uk/employment/employment-legislation/employment-guidance/page34244.html#Statutory#Statutory

Can anyone confirm if this is still in place or if a newer act has taken over and, if so, which act.

The link I give has this which I believe to be critical:

During any period of ‘paid maternity leave’ – regardless of whether this is Ordinary or Additional Maternity Leave – an employer’s pension contribution should be calculated as if the woman is working normally and receiving the normal remuneration for doing so. ‘Paid Maternity Leave’ is when the employee is receiving Statutory Maternity Pay or contractual (occupational) maternity pay, or a combination of both. In other words, if an employee takes 26 weeks of Ordinary Maternity Leave followed by thirteen weeks of Additional Maternity Leave, returning to work when the period of Statutory Maternity Pay comes to an end (see Statutory Maternity Pay and Maternity Allowance), the pension contributions the employer makes should continue throughout the whole period as though the woman was working normally and had taken no maternity leave at all. However, if, rather than returning to work when the period of paid maternity leave came to an end, and employee remains on leave and uses up the rest of her Additional Maternity Leave and is not paid for these final 13 weeks, the employer need not continue the pension contributions during the unpaid leave unless the contract of employment provides otherwise

jamesd

Imelda wrote: »

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.

Is your husband able to get more income tax and/or NI relief on pension contributions than you? If he is then it may be better for him to make the pension contributions then pay you the tax free lump sum from the pension when he reaches 55. That could maximise the tax benefit for the household.

Imelda

jamesd wrote: »

Is your husband able to get more income tax and/or NI relief on pension contributions than you? If he is then it may be better for him to make the pension contributions then pay you the tax free lump sum from the pension when he reaches 55. That could maximise the tax benefit for the household.

He is a 45% tax payer and so is limited to £10k contributions with a tax break. He may also run the risk of hitting LTA as his pot is £475k and he is 40.

The current aim is to get my pot up to a decent level to try to maximise tax savings in retirement. I guess this is the right thing to do?

jamesd

In that situation what you're planning is a good idea for pensions.

It might also be useful for him to investigate VCTs if he hasn't done that already. Those pay 30% income tax relief that has to be repaid if you sell within five years. This lets you do things like getting the relief more than once on the same money. VCTs have far more restricted investment options than pensions or ISAs but do offer a range of risk levels. In effect they are a bit like a way to cut income tax by deferring taking some of your income for five years. I've accumulated enough money to do this so I'm now mostly eliminating my own income tax bill this way.

kidmugsy

Imelda wrote: »

He is a 45% tax payer and so is limited to £10k contributions with a tax break.

Depending on how much he earns, and on the size of his unused personal allowance from the three previous tax years, he might be able to use the £40k annual allowance if he can contribute enough to drive his taxable income down below £110k. I suspect that means that if he's been a 45% payer for more than three years then this wheeze will be unavailable to him.

Imelda wrote: »

He may also run the risk of hitting LTA as his pot is £475k and he is 40.

Such a daft law. You'd have thought the annual allowance system was enough of a limitation on its own.


Anyhow, in light of your two points it probably is wise for you to pile up a sizeable pension pot of your own.

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.

Hi all,

Just wanted to give an update. My wife has now heard back from HR.

They agree that a mistake has been made but believe that under the Employment Rights Act 1996 they only need to pay contributions for the 26 weeks of Ordinary Maternity Leave, rather than the 39 weeks (OML plus paid portion of Additional Maternity Leave) that the documents referred to earlier in the thread suggest.

Having done a bit of digging, it would apepar that 26 weeks is correct IF the employee IS NOT being paid SMP.

They are seeking further advice as its an error which was undetected for some time and has obvious repercussions for other staff members so they clearly want to get it right.

If they come back with a confirmation of 26, rather than 39, weeks, can anyone confirm if 39 is correct? My wife is a trade union member so that would be an obvious next port of call but wouldn't want to do that if 26 is in actual fact correct.

Thanks again all.