A Hidden Pension Advantage for Mothers: Unveiling the Gender Gap Solution
The gender pension gap is a significant issue, with career breaks playing a major role. However, there's a little-known strategy that can help mothers bridge this gap. When on maternity leave, employers are legally required to maintain pension contributions based on the pre-maternity salary. This includes salary sacrifice schemes, where both employer and employee contributions are paid, even if the salary drops to the statutory level.
Here's the catch: Pregnant women can strategically increase their pension contributions before going on leave, ensuring these higher payments continue during their absence. For instance, if you contribute £200 monthly via salary sacrifice, your employer would cover the entire £400 during maternity leave.
Susan Hope, an expert from Scottish Widows, emphasizes the potential for savvy employees to maximize this benefit. However, employers are not obligated to contribute during unpaid maternity leave.
Controversial Findings: Times Money recently uncovered that some firms were reducing pension contributions for mothers, resulting in significant financial losses. This highlights the need for awareness and action.
How to Maximize This Opportunity:
- Understand your employer's policy on adjusting salary sacrifice arrangements. Some offer monthly windows, while others are less frequent.
- Before taking maternity leave, adjust your pension contributions as soon as possible. This may reduce your take-home pay, but it increases your pension earnings during leave without extra cost.
If your employer uses net pay arrangements, your pension contributions during maternity leave will be based on the percentage you pay in. For example, if you contribute 5% under auto-enrolment, you'll contribute 5% of your maternity pay during leave.
Potential Risks:
- Employers may move away from salary sacrifice schemes due to recent budget changes, impacting the savings on national insurance.
- Check your employer's pension policies carefully to avoid any surprises.
The Impact:
Women can take up to 52 weeks of maternity leave, with statutory pay covering the first 39 weeks. The final 13 weeks are often unpaid, leading to a halt in pension contributions. This makes increasing contributions before leave even more crucial.
Example: A woman earning £45,000 and contributing 5% through salary sacrifice would miss out on £563 during 13 weeks of unpaid leave. By increasing her contribution to 7%, she gains £675 during leave, with an extra £54 monthly cost but a £75 monthly pension contribution.
Expert Advice: Rachel Vahey from AJ Bell suggests checking how quickly you can adjust contributions post-maternity leave. Lily Megson-Harvey from My Pension Expert emphasizes the potential benefits of salary sacrifice when used thoughtfully.
This strategy offers a powerful tool for mothers to mitigate the gender pension gap. Are there any thoughts or experiences you'd like to share on this topic? Feel free to discuss in the comments!
