When you talk to mothers-to-be about maternity leave, it’s likely that most have them will have a good idea of what Statutory Maternity Pay (SMP) and Paternity Pay (SPP) will amount to. Some will also be aware of their options when it comes to Shared Parental Leave. Those who are employed will probably have checked out their employment contract, staff handbook and company policies on the subject. You might think that would stand them in good stead to be financially prepared for having a child, but there are a whole bunch of other considerations…
Getting by on SMP
It goes without saying that going from full-time salary to SMP (which in the 2018/19 tax year amounts to £145.18 per week) is likely to result in a sizeable reduction in disposable income for the household, even where there is another parent’s earnings to rely on. Add to that the fact that new mums are likely to continue spending money on social events such as coffee mornings and post-natal groups or classes which provide much needed support from like-minded new parents. These social support groups are arguably important for mental wellbeing, but a significantly reduced income will usually mean that belts will need to be tightened and spending prioritised.
Don’t scrimp on pension saving
If you’re employed, chances are you’re already in a workplace pension scheme. If your membership is on a SMART basis (also known as Salary Exchange or Salary Sacrifice) then you’ll be benefitting from National Insurance savings, but more importantly the law states that your employer must continue to make pension contributions on your behalf at the normal level while you’re on Maternity Leave. If you decide to opt-out of your pension you’ll be waving goodbye to those contributions which effectively cost you nothing.
If you’re self-employed, or your pension isn’t on a SMART/Salary Sacrifice basis and you feel you must cut back your outgoings – consider whether you can simply reduce your contributions. The minimum monthly amount for many schemes is as little as £20. Small amounts saved regularly, particularly in the early years of work can really add up thanks to the effect of compound interest over time. If your partner is working you could ask them to make provision for some pension contribution while your income is reduced.
What if you don’t return to work?
Make sure you’ve read and understood your employer’s policy on maternity pay. It is not uncommon for employers to stipulate a minimum period during which you are expected to return to work, particularly where the maternity benefits exceed the statutory minimum. In some cases if you don’t return to work for the required amount of time you can be asked to repay some of the maternity pay you received.
If you do decide to remain at home full-time, consider the value of the unpaid work you do there. Women do an average of 26 hours per week of unpaid work in the home which would be worth around £260 according to the Office for National Statistics . Demand a share of the household budget and make regular contributions towards a pension in your own name. Up to £2,880 per year can be saved even if you have no earnings at all and will be topped up by the government to £3,600.
Maximise State Pension entitlement
Where a partner earns £60,000 per year or more, they must repay all of the Child Benefit they receive via their tax return. This has resulted in many families not claiming it at all. When a parent claims Child Benefit and is not working they accrue National Insurance (NI) credits in recognition of the contribution they make while not in formal employment. Families can submit a Child Benefit Claim Form to help protect future pension rights using form CH2 and claiming Child Benefit at the ‘Nil rate’.
There’s a significant inequality in the adequacy of pension saving between men and women and equal pay will be a key factor in narrowing the gap. But it’s been over 40 years since equal pay was enshrined in law and while the gender pay gap is slowly shrinking there’s still much to do. Women will need to take action to secure a better financial future. Some practical steps you can take are set out in Gender Pensions Gap.
Progress is being made in closing the gender gap, but women can help to speed this up by taking steps to educate and protect themselves.
Marketing Assistant, LEBC
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. All investments can fall as well as rise in value so you could get back less than you invest. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA.
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