Pensions and Maternity

Pensions and Maternity

17th February 2012

As most Employers will be aware, when a woman goes off on maternity leave she is entitled to retain all of her normal contractual rights and benefits, save for her rate of remuneration.

Instead of receiving her normal wages, she will receive a Statutory Maternity Payment, or an enhanced maternity payment if the contract of employment provides for one. Otherwise all of her other benefits remain the same, so provided that she had them before her maternity leave, she would also be entitled to receive her:

  • Private health care
  • Life Assurance
  • Company Car
  • Bonuses
  • Pay Rises

However, a question arises where an employee has a Defined Contribution pension schemes. “Defined Benefit” or “Final Salary” pensions sit outside of the scope of this problem given that the pension will be calculated depending on the employee’s final salary rather than the value in the pot and therefore the value of input by the employer is somewhat of a moot point as contributions will need to be maintained to support that scheme.

Technically a pension is a contractual benefit, therefore under the Maternity and Parental Leave Regulations the employee would be entitled to receive them as normal. Under UK Provisions a payment is only due where the employee qualifies for a maternity payment in the first instance; therefore no payments are required where an employee does not qualify for maternity pay, or where they are on unpaid Additional Maternity Leave.

However, it would be unreasonable to suggest that she should continue to make payments at the same value as she had been under her full employment as to do so would be likely to wipe out the value of any maternity payment. Section 75 of the Equality Act therefore states that any contributions made by the woman must only be in relation to the sums that she receives at that time. So therefore a woman on maternity leave will only ever have to contribute 5% of her maternity pay, which is presently £6.44.

So far, pretty straightforward; however, what is the employer’s contribution? Well it will first and foremost depend upon the terms of the Pension; if the employer does not contribute in the first place then it will be suddenly expected to contribute thereafter. However if, and for the purpose of this article assuming that the employer does, contribute a percentage of the employee’s salary to the scheme the it’s obligations will continue. IN SUCH CASES it would be reasonable to assume that the value of the contributions would be the relevant percentage of the Employee’s maternity pay. Unfortunately that may be incorrect, as any modified term in her contract of employment must treat an employee on maternity leave as if she is not on maternity leave. It therefore follows that if an employee contributes 5% of her maternity pay then the Employer would have to provide whatever percentage in respect of the employee’s full salary.

There are 2 schools of thought, one as set out above that the employer should continue to maintain their level of contributions, as set out above, and as seems to be implied by and the other which the government appears to be favouring at the moment, although the most recent BIS and HMRC Guidance remain silent on the issue, is to treat the pension contributions as being part of the remuneration, thereby providing that the contributions will vary dependent upon the value of the sums paid to the employee. Unfortunately there is no definitive authority on this point and we await a case that challenges the issues.

Further, the European Law provides us with authorities in respect of the time in which the pension benefits must be provided. The cases of Boyle and Sass appear to suggest that any benefits must be for the duration of the full period of maternity leave, and should not stop at the end of the Ordinary Maternity Leave as they presently do in the UK. Again we await a UK authority on this.

In Practical terms

Practically, what does this mean for employers? Well, if you do not presently provide any contributions to pensions then you will be safe to carry on as you are, however, beware that the law changes from October 2012 and employers will be forced to contribute to their employees pensions.

Equally, if you are supporting an Final salary pension scheme then you are likely to have to keep up the contributions in order to maintain the existence of that pension fund.

In the event that you are providing a pension where the employer makes contributions, it is often best to:

  • a) Offer a payment holiday for the employee during the duration of the maternity leave period, and inform them that they can make increased contributions at a later date if they wish to do so. Given that statutory payments are low, many employees will be grateful of the chance to take that opportunity and thus also allowing the employer to do the same.
  • b) Check the rules and terms of your scheme to see what you are contractually obliged to pay, to see what contributions you will pay, if any.
  • c) Consider reducing the pension payments to a value equal to the employee’s contributions. However, you should take independent legal and pensions advice before doing so.