14-06-2024

A very common question for employers who have employees on maternity leave is what are their duties in regards to pension for these employees.

There are different types of pension schemes and this means in turn that the obligations for employers will also be different, dependent on what type of scheme they are operating.

Different Schemes

  • Net Pay Arrangement (NPA), an employee’s pension contributions are taken from their gross pay before wages are taxed. Therefore, the member only pays tax on what remains of their salary and receives their full tax relief immediately based off their income taxpayer rate.
  • Relief At Source (RAS), is a way of giving tax relief on contributions an employee makes to their pension scheme. Employee’s get tax relief based on their residency status, at the relevant basicrate that applies to the UK, Scotland or Wales. The scheme administrator claims the basic rate tax relief from HMRC and adds it to the pension pot. This applies if the member pays tax or not.
  • Salary Sacrifice pension, this is an arrangement between you and your employer where you give up a portion of your salary in exchange for additional pension contributions from your employer. With a salary sacrifice scheme, you agree to reduce your gross (pre-tax) salary proportionately. However, these reduced payments count as employer contributions, not employee contributions. By reducing your salary, you pay less income tax and National Insurance (NI). Your employer also saves on NI contributions.

What are the maternity rights in regards to pension

  • Rights during the first 26 weeks – Ordinary Maternity Leave (OML)
    • The employee has full employer pension rights as if they were working normally, whether they are in receipt of maternity pay or not, this is based on the salary prior to going on leave.
    • Employee contributions are based on SMP being received unless it is a salary sacrifice pension scheme.
  • Rights during the last 26 weeks – Additional Maternity Leave (AML)
    • If the pension scheme is an RAS/NPA scheme then the full employer contributions must continue for the whole time that the employee is receiving payment (39 weeks), whether statutory pay or occupational.
    • The employee contributions continue to be based on the amount of maternity pay received.
    • If the scheme is a salary sacrifice scheme then the employer continues to pay the full employer amount for the whole period, even if the employee is not receiving any pay, as all pension contributions in a salary sacrifice scheme are employer contributions.

Summary

  • If you are operating a RAS/NPA pension scheme, as an employer you are obliged to continue the full contribution for the full 39 weeks paid maternity period. After the first 26 weeks you will need to check your pension policy in regards to employers obligations during the 13 weeks of paid AML. The employees contribution is based on the amount of pay they receive.
  • If you are operating a salary sacrifice scheme you are obliged to continue the full employer contribution for the whole maternity period (up to 52 weeks), as you cannot take a salary sacrifice deduction from Statutory parental pay, this then becomes a full employers liability.

"I know it is not till next June but just booked on The Payroll Centre's Annual conference. This is my must do course/conference of the year, having been almost every year for 10+ years, only missing for my wedding and having a baby, I even went one year with a 3 month old in tow! "

Andi Herrington
Director of Payroll Services at Wallis Payroll Ltd

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