Maternity provisions

Maternity provisions

Whilst these changes impacted from spring 2007, we are aware that some schemes would appreciate a refresher from both an employer and a trustee perspective.  Please note that similar provisions apply in relation to adoption but for brevity we have not covered them within this Bulletin – please contact us for details.

Summary of statutory position

• Statutory Maternity Pay
  Statutory protection is in place in respect of pension entitlement for employees who take maternity leave from work.  The key change, which now impacts on all pregnant women who qualify for Statutory Maternity Pay (SMP), is that they are entitled to receive SMP for 39 weeks, whereas previously SMP was only paid for 26 weeks.  (It is, of course, possible for employers to provide more generous contractual remuneration for employees on maternity leave.)
  
• Pension entitlement whilst on paid maternity leave
  Any period of paid maternity leave (whether the employee is receiving contractual pay or just SMP) must be treated as pensionable service.  Benefits are based on the salary the woman received before going on maternity leave (this includes death in service benefits) so, for pension benefits, a woman on paid maternity leave is treated as though she is working normally and receiving her normal salary.  The woman on maternity leave is, however, only required to pay contributions to a pension scheme based on the amount of SMP or contractual pay she actually receives.
•  Pension entitlement whilst on unpaid maternity leave
  Any period of unpaid maternity leave does not qualify as pensionable service, although the period of employment before and after the unpaid maternity leave must be treated as continuous.  If an employer wishes to provide enhanced benefits, however, it could continue to provide pension benefits during a period of unpaid leave.  Where the employee indicates that they wish to continue in pensionable service during unpaid leave and the employer agrees to contribute, the employer can of course require the employee to make the necessary contributions. 
•  Keeping in touch days
  Employers are now required to offer "keeping in touch days" to employees during their maternity leave.  If employees are paid when coming to work for a keeping in touch day, pension benefits will accrue as if the employee is working normally.

A woman on paid maternity leave continues to accrue benefits as usual, based on her normal salary before she went on leave.  The employer will continue to fund the scheme in accordance with the schedule of contributions.  There is an impact for scheme funding if the scheme is contributory, since the woman on maternity leave will only be obliged to contribute to the scheme on the basis of pay she is actually receiving whilst on paid leave.  This additional cost will require to be met by the employer.

Pensions accrual – what happens in defined contribution schemes?

During paid leave, an employer must continue to contribute on the same basis as prior to commencement of maternity leave.  A woman on paid leave is obliged only to make contributions based on a percentage of the SMP or contractual pay she is receiving, leading to a shortfall between employee contributions made prior to commencement of leave and contributions made in accordance with the reduced salary.  Although it is arguable that an employer should make up this shortfall, legally this is a grey area and many employers take the view that they do not need to make up any shortfall.  Employees should also be asked if they wish to continue to contribute to the scheme on the basis of their normal salary.

Action points for trustees and employers

As the new statutory maternity requirements are overriding, pension schemes must be run in accordance with these provisions, irrespective of the terms of the scheme rules.  In order to keep rules up-to-date, however, it would be advisable to consider whether rule amendments are needed at some point in the near future. Trustees should ask the employer for details of their maternity policy.  Trustees can then arrange for their scheme rules and booklet to be reviewed to ensure they reflect at least the minimum statutory position or any enhanced policy offered by the employer.

If you require more tailored advice, please contact one of the following Partners:
Andrew Holehouse
Louisa Knox
Edwin Mustard

30/01/2008