As a member of a defined benefit pension scheme, periods that you spend on paid parental leave are treated as pensionable service and you accrue benefits. If you’re a member of a defined contribution pension scheme, when on paid parental leave you’re still contributing to your pension and so is your employer.
Parental leave and pensions
During parental leave you will pay into your pension based on your parental leave pay, not your pay before you took parental leave. This is why your parental leave is important to your pension contributions, as often it is less than your working pay.
There are four types of parental leave and pay which you’re protected under:
Statutory Maternity Leave
Statutory Paternity Leave
Statutory Shared Parental Leave
Statutory Adoption Leave
Pension contributions when on maternity leave
If you’re taking maternity leave, it’s a good idea to check how your employer’s parental leave policy compares to Statutory Maternity Pay and Leave.
- Statutory Maternity Pay: for the first six weeks of your maternity leave you’re entitled to 90% of your average weekly income - before tax. For the following 33 weeks you’re entitled to £172.48 or 90% of your average weekly income - whichever is lower.
If you don’t qualify for Statutory Maternity Pay, you may be able to claim a maternity allowance.
- Maternity Allowance: you can claim £172.48 or 90% of your average weekly income - whichever is lower - for the full 39 weeks. If you haven’t paid enough National Insurance you may be limited to an allowance of £27 a week for the 39 week period.
Pension contributions when on paternity leave
If you’re taking paternity leave, it’s a good idea to check how your employer’s parental leave policy compares to Statutory Paternity Leave and Pay. Unlike Statutory Maternity Pay, the Statutory Paternity Pay is less generous.
- Statutory Paternity Pay: for one or two weeks of your paternity leave you’re entitled to £172.48 or 90% of your average weekly income - whichever is lower.
If you and your partner want to take parental leave together, there is an option to take shared parental leave.
- Statutory Shared Parental Pay: you can claim £172.48 or 90% of your average weekly income - whichever is lower - for the full 39 weeks.
Pension contributions when on adoption leave
If you’re adopting your child, you can now take adoption leave. Statutory Adoption Pay works the same way as Statutory Maternity Pay.
- Statutory Adoption Pay: for the first six weeks of your adoption leave you’re entitled to 90% of your average weekly income - before tax. For the following 33 weeks you’re entitled to £172.48 or 90% of your average weekly income - whichever is lower.
Employer pension contributions
Your type of pension - defined benefit or defined contribution - will determine how your employer contributes into your pension during your parental leave.
If you have a defined benefit pension your parental leave will continue to count towards your pensionable service, but at your parental leave pay. This might affect your pension if your scheme is based on ‘career average’ income.
- Your defined benefit pension measures: years employed, average or final salary, and the percentage of your salary you’ll receive as your pension.
If you have a defined contribution pension you will contribute into your pension based on your parental leave pay, and your employer will contribute into your pension based on your pay before you took parental leave.
As long as you’re paying into your pension, your employer will too. If you cut your contributions, then your employer can also stop contributing.
Keeping up your personal pension contributions
If you’re taking the available 13 weeks of unpaid maternity, adoption or shared parental leave then you won’t be paying into your pension, and neither will your employer.
During periods you’re paying into your pension you’re an active member of your scheme, and during periods you aren’t making any contributions you’re a deferred member of your scheme.
Here are some tips for staying on top of your pension:
Bump up your pot: pay in a single lump sum to keep your pension growing when contributions are paused.
Keep active: set up a regular payment into your pension to stay an active member of your scheme.
Combine your old pensions: having all your old pensions in one place to follow your personal finances better.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
