Understanding Maternity Leave and Pension Contributions

Maternity leave is a significant period in the life of an employee, marked by both joy and practical considerations. Among these considerations are financial aspects, such as understanding what happens to pension contributions during this time.

Statutory Maternity Pay (SMP) and pension contributions with a salary sacrifice

If an employee has entered into a salary sacrifice agreement to exchange part of her salary in return for pension contributions, the employer will continue to make pension contributions based on the employee’s usual pay. These contributions are not based on the amount of the SMP being received, as SMP is a statutory payment, not salary.

A salary sacrifice agreement is to sacrifice salary, not to give up a statutory payment. So, the employee receives her full SMP with no deduction for pension contributions.

Statutory Maternity Pay (SMP) and pension contributions without a salary sacrifice

If an employee has not entered into a salary sacrifice agreement, the employer will continue to make full pension contributions based on the employee’s usual pay throughout the maternity pay period. The employer’s contributions remain unchanged, however the employee pension contributions will be based on her new gross payment, even if that payment is solely SMP, for the duration of the maternity pay period.

If the employee has a relief at source pension, the new employee contribution amount would be deducted from the employee’s net payment. The tax relief will be given by the pension provider as usual.

If the employee has a net pay arrangement pension, the new employee contribution amount would be deducted from the employee’s gross payment (even if it is just SMP), for tax purposes only, so that they get their tax relief on their pension contributions through the payroll as usual. Class 1 NIC would still be charged on the full gross amount of SMP.

SMP and Pension Contributions after the 39 weeks of Maternity Pay Period (MPP)

If the employee takes more than 39 weeks of maternity leave, pension contributions will cease after the 39-week period. During the unpaid portion of maternity leave, the employee is essentially on unpaid parental leave and all pension scheme contributions will stop until the employee receives pensionable pay again.

Employee not eligible for SMP from Employer

If the employee is not eligible for SMP from her employer, the employer must provide her with an SMP1 form within seven days of making this decision. This form will assist Jobcentre Plus in determining if the employee qualifies for maternity allowance. The employer will continue to make employer pension contributions for the first 26 weeks of maternity leave (Ordinary Maternity Leave), even if no SMP is due.

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