pensions contributions during maternity leave
by Roderick Ramage, solicitor, www.law-office.co.uk
issued to professional contacts as at 1 January 2002
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
Under s71 of the Employment Rights Act 1996 an employee absent from work on ordinary maternity leave is entitled to the benefit of the terms (whether or not contractual) which would have applied had she not been absent except terms about remuneration. If she is a member of a pension scheme sponsored by her employer, her membership of it will continue because membership is part of her terms, but the payment of her employer’s contributions is not remuneration.
Schedule 5 of the Social Security Act 1989 requires every employment related pension scheme to comply with the principle of equal treatment, which is that persons of one sex must not be treated less favourably than persons of the other on the basis of sex. The scheme must not contain an unfair maternity provisions, ie (in this case) ones which requires the amount of any benefit payable under the scheme to a woman who takes maternity leave to be different from what it would have been if she worked normally and receives normal remuneration. The schedule also provides (para 5) that during her paid maternity absence a women is required to pay her contributions on the amount of her actual pay, whether contractual remuneration or statutory maternity pay, during the period, and not the amount which she would have paid were she working normally.
If she belongs to final salary scheme, she will accrue service as though she had been at work, so her absence will not make any difference to the length of service which will count for calculating pension on retirement.
The position in a money purchase scheme is different. Her contributions again will be based on her actual pay during her maternity leave, but the employer's contributions will be based on what would have been her normal pay had she not been on leave. That would be simple, except for the ambiguity introduced by the prohibition of unfair maternity provisions in the scheme in the SSA 1989 sch 5, which is based on benefits and not contributions. A woman who has taken maternity leave would receive a smaller pension from a money purchase scheme than a woman with the same career and salary pattern who has not taken maternity leave, because of the lower contributions paid during her maternity leave.
This ambiguity leads to the argument that the employer should pay not just its normal contributions, but should make up the difference between the reduced contributions that the woman makes and those which she would have made had she not been on maternity leave. One counter argument may be that the lower pension results not from a provision of the scheme but the inherent nature of money purchase schemes.
Until this matter is resolved by the courts or legislation, employers should be aware that there is this risk, so that if they pay just the normal employer's contributions, they should make a reserve to cover the shortfall in the employees contributions in case an employee makes a successful claim for them in the future.
copyright Roderick Ramage
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