What are the requirements for pension contributions if an employee in your workplace pension scheme takes parental leave?
To help answer this, it’s necessary to take account of not only the statutory position, but your terms and conditions of employment and the HR policy relating to the specific type of leave requested.
The information in this article is based on our understanding of current legislation, which may change. It covers the different types of parental leave and the requirements for pension contributions in relation to workplace pensions – both defined contribution occupational pension schemes and personal pensions.
The entitlement to statutory parental leave and pay is subject to service and earnings requirements. Details can be found on the government website – links are provided at the end of this article. If as an employer you’re in any doubt as to your obligations and what you should be doing, please speak to a financial adviser or take legal advice. All the rates quoted in the article are for the 2023/24 tax year.
Maternity pay and leave
It’s possible for an employee to take up to 52 weeks of Statutory Maternity Leave and, subject to eligibility, receive Statutory Maternity Pay (SMP) for up to the first 39 weeks from their employer.
As a minimum, through SMP, they’ll get:
- 90% of their average weekly earnings (before tax) for the first six weeks.
- Then £172.48 or 90% of their average weekly earnings (whichever is lower) for the next 33 weeks.
The 52-week period is made up of 26 weeks of Ordinary Maternity Leave and 26 weeks of Additional Maternity Leave. They can choose to return to work before the end of the 52 weeks. If they decide to take the full 52 weeks of leave, the last 13 weeks may be unpaid.
Although these are the statutory minimums for maternity pay and leave, you can choose to pay more than the SMP minimum amount or provide pay for more than 39 weeks. Individuals should check their employment contract to understand their own situation.
If employees aren’t eligible for SMP, they may qualify for Maternity Allowance.
Adoption pay and leave
The same periods of leave and levels of pay that apply on maternity also apply for adoption leave and pay. It’s possible to take up to 52 weeks of Statutory Adoption Leave and, subject to eligibility, receive Statutory Adoption Pay (SAP) for up to the first 39 weeks.
The 52-week period is made up of 26 weeks of Ordinary Adoption Leave and 26 weeks of Additional Adoption Leave. They can choose to return to work before the end of the 52 weeks. If they decide to take the full 52 weeks of leave, the last 13 weeks may be unpaid.
Again, you may pay more than the SAP minimum amount or provide pay for more than 39 weeks. It’s up to individuals to check their employment contract to understand their own situation. Only one person in a couple can take adoption leave – the other person may be able to take paternity leave.
Paternity pay and leave
When someone takes time off because their partner has given birth, or because of an adoption or surrogacy arrangement, they could be eligible for 1 or 2 weeks of paid paternity leave and pay. This must be taken within 56 days of the birth (or the due date, if the baby is early).
Paternity leave must all be taken in one go. As a minimum, through statutory paternity pay (SPP), they’ll get £172.48 per week or 90% of average weekly earnings, whichever is lower.
Shared parental leave and pay
As an alternative option, it’s possible for couples to take Shared Parental Leave (SPL) and be eligible for Statutory Shared Parental Pay (ShPP) on the birth of a baby, or on adoption.
Up to 50 weeks of leave and 37 weeks of pay can be shared between the couple in the first year after their child is born, or after adoption. Leave is flexible in that it can be taken all in one go or taken in a limited number of blocks subject to employer agreement. A couple can choose to take time off together or split their time off to stagger the leave and pay they’ll receive.
If a person is eligible and either they, or their partner, end maternity or adoption leave and pay early, they can take the remaining 52 weeks of maternity or adoption leave as SPL and the remaining 39 weeks of maternity or adoption pay as ShPP. As a minimum, through ShPP, they’ll get £172.48 per week or 90% of average weekly earnings, whichever is lower.
Both partners must share responsibility for the child to be eligible for SPL and ShPP. There are different conditions to be met depending on whether both partners want to split SPL and ShPP, or only one of them wants to apply.
Pension contributions during parental leave
Time-off during parental leave will either be paid or unpaid.
As shown above, there are statutory rules for each type of parental leave covering the levels of pay available and the length of time pay will continue for. You can choose to pay more than the statutory minimums and should set this out in the terms and conditions of your employment and HR policy.
During paid leave your employee is entitled to continue as a member of your pension scheme, and you’re required to make contributions as if they were working normally and receiving normal pay. This includes any pay rises due during the period of leave.
Any contributions they make are based on the actual pay they receive when on leave.
During unpaid leave, it’s accepted that there’s no statutory requirement for you or your employee to make pension contributions.
It’s worth noting that if someone chooses to stop their own contributions when on parental leave, you’re entitled to stop contributing too.
As an example, for someone taking a full 52 weeks of maternity leave:
- Pension contributions should continue to be made for the 26 weeks of OML and the first 13 weeks of AML.
- For the final 13 weeks of AML, it will depend on whether your employee is being paid or not. If the leave is paid, then pension contributions should continue to be made. If leave is unpaid, there’s no statutory requirement for pension contributions to continue.
What about salary sacrifice?
If pension contributions are being made via salary sacrifice, which means payments are effectively made by you as the employer, the situation is slightly different.
If an individual has reduced their gross pay through salary sacrifice, any statutory or contractual pay they’re entitled to may be calculated based on this lower amount.
They should check their contract of employment, though, to see if their employer uses a higher ‘reference salary’ for any contractual maternity pay. If they don’t cancel their salary sacrifice arrangement, you’ll continue to pay the same amount into their pension during paid parental leave based on their normal level of pre-leave pay.
For periods of unpaid leave, we recommend you take legal advice on whether contributions should continue.
However, pregnancy or adoption could be classed as a ‘lifestyle change’ by HM Revenue & Customs, meaning an employee could choose to opt-out of their salary sacrifice arrangement as part of going on parental leave.
If they choose to opt-out, the pre-sacrifice position normally applies. This could mean they’ll start paying pension contributions alongside employer contributions during paid leave.
If a salary sacrifice arrangement is cancelled, for example to increase their pay during parental leave, it’s important that they remain in their workplace pension scheme and pay their own pension contributions. This is to make sure they’ll continue to benefit from your employer contributions.
More information
You can find more resources and guidance from the government around parental leave on their website:
Maternity, paternity and shared parental leave calculator
You can also visit the MoneyHelper website.