When your family gets bigger, there are so many things to consider. Aside from practicalities at home, you also need to think about your maternity and/or paternity leave and how this might impact your finances. How does your parental leave impact your pension? We take a closer look.

How does a maternity leave pension work in the UK?

As standard, going on maternity or paternity leave should not negatively impact your building pension. Since you are still an employee and still receiving pay as such, your pension is not paused or stopped during this time. In fact, as you are still counted as an employee, your pension will continue to build during your maternity or paternity leave. However, it is worth noting that the amount will be based on your salary before you go on leave, rather than reflecting any salary increase that may happen during your leave or after it.

How extra leave is counted

In some cases, you may wish to take extra leave on top of the pre-agreed maternity leave. In this case, this is not viewed as standard and your pension will not continue to build. This is because this leave falls outside of the allowed leave, meaning the rules are slightly different. While you are still an employee, this does not fall strictly under your maternity leave pension rights.

Check your pension scheme type

Your paternity or maternity pension amount and how it builds is highly dependent on the type of scheme you are a member of. A defined benefit scheme means you will build up your pension on your paid leave, but not on unpaid leave – and this can reduce your overall pension amount. Career average schemes have similar rules, while defined contribution schemes are based on your earnings and you will not contribute during unpaid leave, though your employer may, depending on your contract terms.

Returning to work

As you begin to consider returning to work after your maternity or paternity leave, you may wish to increase your pension. Not only will this give your long-term pension savings a boost, but it will also allow you to see how your savings are performing and give you a good idea of what your retirement may look like.

When you are thinking about your pension and how it might be impacted by your maternity or paternity leave, it helps to have a dedicated expert to help you. Our UK payroll services offer easy auto-enrolment so you know that you are covered as you take the next step in your life.