It’s little secret that women are forced to take more career breaks than men if they choose to have a child, with maternity leave being the most obvious example.
Although taking time off to nurse and bond with their newborns is both necessary and special for mums, it’s among the major contributing factors when it comes to the gender pension gap.
This refers to the inequality between male and female private pension pots at retirement — and it’s pretty stark too.
According to the most recent government data, from 2020 to 2022, the median pension for women was £81,000, while men had £156,000, equating to a 48% gap.
But there’s a little known simple pension loophole mothers could use to limit the shortfall.
Better still, it doesn’t usually require much admin, which means more time enjoying that new baby glow and less time worrying about money.
The pension pot hack
Essentially, when you go on maternity leave, your employer is legally required to continue to pay your pension contributions based on your pre-maternity salary.
And if your company offers a pension via a salary sacrifice scheme — where you agree to reduce your gross salary or sacrifice a bonus, and in return, your employer pays the same amount into your pension — they have to pay both the employer and employee contributions.
This is the case even if your salary drops to statutory pay.
So if you can afford to, you can make the most of this by increasing your pension contribution before going on leave, thereby reaping the rewards of the increased payments while at home with the baby.
In a nutshell, it means even if you’re taking home the statutory £187.18 per week in mat pay, your company will still have to account for the pension contributions you’ve opted into, and match them also.
If you increased your pension contribution to £300 per month through salary sacrifice, for example, the employer would pay the entire £600 to account for both payments once your leave begins — regardless of your real-terms reduced salary you’re getting each month.
What to watch out for
It’s important to note that your employer doesn’t need to make these contributions during a period of unpaid maternity leave.
For reference, women can take 52 weeks of maternity leave, but only receive statutory maternity pay for the first 39 weeks, while the final 13 are unpaid. And during these final 13 weeks, your pension contributions could cease altogether, potentially cutting hundreds off your retirement fund.
Of course, your company may offer enhanced maternity packages which see you get paid for the full 52 weeks, but this is not standard.
Either way, it’s worth considering how to alter your pension contributions with your employer, and if suits your needs, to do so as soon as you know you’re planning to take maternity leave.
This could mean you miss out on some extra pay before giving birth. But if you can take the financial hit, then you’ll increase the pension pay you earn while looking after your baby.
Already been on maternity leave? Check you weren’t underpaid
If you notice that your pension contributions were matched to your maternity pay rather than your pre-maternity salary, Fiona Peake, personal finance expert at Ocean Finance says you should follow these steps:
- Get external advice: ‘If the issue isn’t resolved, they can speak to a union (if they’re a member) or get free advice from organisations like ACAS or MoneyHelper.’
- Check your contract and workplace pension policy: ‘This will confirm what was agreed regarding pension payments during maternity leave.’
- Speak to HR or payroll: ‘Mistakes happen, and a quick conversation could get things corrected without too much hassle.’
- Raise a formal complaint: ‘If HR doesn’t sort it out, employees can submit a written complaint outlining the issue and referring to the pension rules.’
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