pensions
contributions during maternity leave
by
Roderick Ramage, solicitor, www.law-office.co.uk
issued
to professional contacts as at 1 January 2002
DISCLAIMER
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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