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Post-natal
recession? Walk
into any high street newsagent nowadays and somewhere, nestling
between the build-your-own-car and 100-things-you-didn’t-want-to-know-about-celebrities
magazines, you will find an entire section devoted to the joys (depending
on your point of view) of parenting. These tomes are full of sensible
advice and encouragement for nervous parents to be, but they are
sorely lacking in one respect. Imagine the following checklist: The last item appears so out of place, not because the idea is ridiculous, but because most parents of very young children live in the present, or at least immediate future. Putting extra money aside for some unspecified period in the distant future is probably low on the list of priorities for women who have taken time off to care for their children, but it could prove crucial in the long run. The pension contributions made by both employer and employee during maternity leave vary according to the type of scheme and whether the leave is paid or unpaid. At present, women are entitled to take 18 weeks ordinary maternity leave (OML) and, for those who have at least one year’s service, additional maternity leave (AML) up to a maximum of 11 weeks before and 29 weeks after the birth. Government proposals for increased maternity leave would take effect in 2003, bringing the OML period to 26 weeks and AML to 52 weeks. Statutory Maternity Pay is normally payable during OML (unless the woman is a very low earner), but often not during AML. The pensions question is relatively straightforward for periods of OML – contributions should continue to be made by both employer and employee; the employer must contribute to the pension fund as if the woman is working normally, while her contribution should be based on her Statutory Maternity Pay. This will have the effect of reducing her overall contributions, but the damage done over 18 weeks will not be great. Benefits are not normally provided during AML, however, and, if the proposals for increased leave are passed, a woman could spend a whole year on leave from her job without paying into her pension fund. If she decides to take a few more years out to look after her child, the impact on her retirement income could be considerable (see inset box). “What really hurts is career breaks – they’re really quite damaging to your pension provision,” says Roland Jones, a pensions consultant with IFA firm Towry Law. The obvious option for a woman taking a career break would appear to be a stakeholder pension, as she could save up to £3,600 per year without earning, or even more as she could continue to contribute based on her best earnings for the first five tax years after leaving work. Alternatively, if she has an occupational pension, she could pay in AVCs (additional voluntary contributions) to make up the shortfall, but these options could be prohibitively costly for many working mothers as they would have to double their contributions to compensate for the lack of employer contributions. “In money purchase schemes, it has a big effect because of compound interest,” says Jones. “The money you pay in your 30s actually makes a lot of difference to your pension. If you miss five years or more at that time of your working life, it has a disproportionally large effect on your overall retirement income. It’s an angle people need to be aware of.” He also suggests ISAs (or cash ISAs in the short term) as “the obvious alternative”, as a woman could put this money into her pension, perhaps over a couple of tax years, depending on her earnings and other savings. “For many women it may be the right thing to keep the discipline of saving, but to do it in a way that remains accessible, so if you’ve got unexpected household demands, you’ve not lost the money until you retire,” he says. The issue of pension rights on maternity leave was raised in 1999, when Margaret Boyle took her employer, the Equal Opportunities Commission, to the European court on the grounds that, since men receive full benefits on sick leave, women should get the same kind of benefits while on maternity leave. She lost the case, leaving the provision of benefits beyond the statutory requirements to the discretion of the employer. David Pollard, a partner with Freshfields Bruckhaus Deringer in the employment, pensions and benefits department, advises clients on the legal minimum they should pay employees while on leave, and ascertains how generous they are prepared to be in addition to the statutory minimum to retain valued staff. He says that a number of employers make the whole leave period pensionable, while others will include provisos, such as demanding that the employee remains in the company for at least six months on their return, or pays back the contributions made during their unpaid leave. The “vast majority” of his clients also extend the lump sum death benefit cover over the whole period of maternity leave. Pension contributions must be made over any period of paid leave, and one hotly contested issue remains whether additional benefits such as company cars count as remuneration, and therefore pensionable pay. “People could end up saying, ‘we’ll withdraw the car because we don’t want to pay your pension’”, says Pollard. Will employers be less inclined to be generous if they have to pay benefits for twice as long under the new rules? “To the extent that they are able to, employers who currently provide pay and benefits over and above what they are required to provide, or for a longer period, may want to review the position, although the fact that they have chosen to be more generous in the past may mean that they are particularly keen to attract and retain this sort of employee,” says Clive Briggs, head of technical advice at Towers Perrin. But it is only in sectors such as financial services, where very generous maternity packages are still provided. “Retention of valued staff, and certainly of female employees, is more of a focus for companies these days,” says Andrew Taggart, a senior associate in the same department as Pollard at Freshfields. “Up to ten years ago, employers started realising that one of the reasons female employees don’t stick around is that there’s no incentive to come back. They might as well take their SMP and go.” Among the incentives an employer could provide are continued holiday accrual, use of the company car, pro-rata bonus payments and continued pension rights, without, of course, exceeding revenue limits or breaching other rules of the scheme. But
it tends to be only the cream of employers who would be prepared
to reach that deep into their pockets. “If people are going to take
six months off at £100 per week, only the most generous employers
in the current market are going to be offering anything more than
that,” says Jo Plumstead, a senior employment solicitor at Kennedy’s.
The likelihood is that overstretched HR departments will want to
keep additional expenditure to a minimum. And this, combined with
the usual lack of disposable income that is frequently part and
parcel of bringing up young children, will not help bridge the savings
gap experienced by working mothers struggling to afford spiralling
childcare costs. More a case of those baby blues.
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