A large number of women are seeing their pension contributions being incorrectly reduced while they are on maternity leave, in what experts say is a “widespread” problem leading to lower savings in retirement.
When you go on maternity leave, you are typically paid 90 per cent of your average weekly earnings before tax for the first six weeks under statutory rules. You then get £187.18 a week or 90 per cent of your average weekly earnings – whichever is lower – for the next 33 weeks.
Some employers offer more than this, known as enhanced maternity pay. During your whole maternity leave, your employer is supposed to keep paying your contributions based on your full salary – not your reduced salary.
This rule applies regardless of whether the pay is enhanced or statutory.
But experts say they are seeing large numbers of cases where women’s pension contributions are being paid in line with their reduced earnings, and this was is corrected when the employee flags it.
Rachel Grocott, chief executive of campaign group Pregnant Then Screwed, told The i Paper: “Incorrect pension payments to women on maternity leave is a widespread issue – something which is not entirely surprising, but is infuriating to say the least.
“Maternity leave is not a holiday: you are still an employee and should be treated as such, and pension contributions should remain the same as it did before you went on leave.”
Danielle Pearce, chartered financial planner at Northwood Wealth Management, said: “I would estimate that I see these errors in around 30-40 per cent of cases, and I think it usually comes down to lack of understanding by employers, as well as administrative complexity.”
She said that the mistakes can appear small on paper, which is why many do not notice them.
She added: “If an employer contributes 5 per cent of a £40,000 salary, that equates to around £2,000 per year. Over several months of maternity leave, the shortfall might appear to be only a few hundred pounds.
“But pensions rely heavily on compound investment growth, meaning small gaps early in a career can have a much larger effect decades later.”
Earlier this month, we revealed how one woman had incorrectly had her employer contributions reduced to zero when she went onto statutory maternity pay.
Ms Pearce added: “I believe this is a hidden contributor to the gender pension gap. Women already retire with smaller pension pots due to things like career breaks and part-time work.
“When pension contributions are incorrectly reduced during maternity leave, it further widens the difference. The issue is particularly problematic because it often goes unnoticed.”
Nouran Moustafa, financial adviser at Roxton Wealth, said she has also seen this issue come up with multiple clients, and she has realised that “many would not even know to question it”.
“In most cases, once it is identified, the employer should recalculate what should have been paid and correct any shortfall, but the point is that it should not be left to the client to spot months later,” she said.
What can employees do if they notice their pension contributions have been reduced?
If you spot that your pension contributions reduced during your maternity leave, flag it to your employer or payroll and ask for it to be corrected.
The Pensions Regulator, which oversees workplace pension schemes, says it expect employers to correct contribution errors “promptly”, so your employer should aim to rectify mistakes as soon as possible.
Holly Tomlinson, financial planner at wealth manager Quilter, said: “It’s important for anyone going on maternity leave to check that their pension contributions are correct on their payslips.
“If something doesn’t add up, you should raise it with your HR or payroll teams as soon as possible. In most cases, employers can correct mistakes by topping up missed contributions, but the sooner the issue is caught, the better.”
Ms Pearce added: “Employers can usually correct mistakes by making backdated contributions directly into the pension scheme in one lump sum. In many cases, they can also adjust any employee contributions that were incorrectly calculated,” she added.
She said it can be more complex if you spot the error several years later, as you have already lost investment growth on your contributions and so might be at a significant financial disadvantage.
“If the correction happens years later, simply paying the missed contributions may not fully restore the member to the correct position. The Pensions Ombudsman often applies the principle that members should be returned to the position they would likely have been in had the ‘maladministration’ not occurred.”
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