The Department for Work and Pensions (DWP) has issued an update focusing on the pension contribution issues faced by many women, as the Pensions Commission prepares to review potential pension reforms.
One key area under examination is how pension contributions are handled during periods of family leave. Typically, when a woman takes paid family leave, both she and her employer continue to make payments into her workplace pension.
Eligibility for Statutory Maternity Pay usually means that family leave is paid by the employer for up to 39 weeks - roughly nine months. Many employers provide additional payments beyond this period or extend the duration further, so employees are advised to consult their workplace family leave policies for specific details.
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During employer-paid maternity, paternity, or adoption leave, pension contributions generally continue uninterrupted for at least the first 39 weeks. However, if an employee opts for unpaid leave after this period, pension contributions typically cease. This situation often arises between weeks 40 and 52 of maternity or adoption leave, since while entitlement to time off remains, payments such as Statutory Maternity Pay end at week 39.
For those who do not qualify for any employer-paid leave, their employer’s contributions usually continue for the first 26 weeks (approximately six months), even if the employee receives Maternity Allowance-a government benefit rather than employer-paid income.
According to guidance from the People’s Pension, employers should base their pension contributions on the employee’s salary prior to starting maternity leave. Employees, in contrast, contribute based on the pay they actually receive during leave, such as Statutory Maternity Pay. This means that if earnings fall below the lower earnings threshold, employees’ contributions could be nil when calculated on a qualifying earnings basis.
This issue came into the spotlight after Rachel Gilmour, Liberal Democrat MP for Tiverton and Minehead, questioned the DWP about the impact of reduced pension contributions during maternity leave on women’s retirement savings.
Parliamentary Secretary at HM Treasury, Torsten Bell, responded by recognising the progress made through Automatic Enrolment and reforms to the State Pension in increasing women’s workplace pension participation and reducing historic inequalities. However, he acknowledged that significant gaps remain between men and women regarding pension participation and overall pension wealth-a reflection of broader structural inequalities in the labour market. Periods of reduced pay during maternity leave may further contribute to lower retirement savings for women.
Mr Bell confirmed that the Pensions Commission will explore measures to improve pension outcomes for all, especially groups at greater risk of under-saving, including women. The Commission’s final report is expected in early 2027, after which the Government will carefully consider its recommendations.
The revived Pensions Commission will not only focus on encouraging people to save-many of whom now do, mainly thanks to automatic enrolment-but will also look at how to ensure individuals can save enough for a comfortable retirement, according to the Institute for Government.
Financial advice services such as MoneyHelper recommend that women consider making additional pension contributions during unpaid leave periods to offset potential losses. Even small payments made now can significantly enhance pension savings over time. Partners with unaffected incomes might also contribute to help boost pension funds.
Upon returning to work at the same salary, pension contributions should resume as before. However, if working hours are reduced or if the employee does not return to work, contributions may decrease or stop completely. MoneyHelper emphasises that working fewer hours can slow pension benefit growth, impacting retirement income.
To build sufficient retirement funds, individuals may want to increase their contribution rates, and where employers offer matching contributions, negotiate for higher matching payments. If leaving work permanently after family leave, workplace pension contributions cease, but providers will typically manage the pension until the individual begins drawing an income.
Overall, even brief interruptions in pension contributions can have a notable effect on future retirement income, so it remains important for individuals to plan how they will continue saving, including considering setting up a private pension.