Pensions, Salary Exchange & Statutory Maternity Pay


Warning – this article contains generalisations. People for whom taking offence is either a vocation or a full-time hobby should look away now.             


Let me start with a few statements, to set the scene, as it were: –


  • By and large, it is women who have babies
  • Also by and large, it is women who take time off work having had a baby to recover, bond and ensure the child has the best start in life. I am aware that fathers/male partners do sometimes take time off following birth, but this is still a relatively rare occurrence
  • More and more employers are using Salary Exchange as the default way of paying pension contributions because, as regular readers will already know, this is the most efficient way of paying pension contributions for most employees and all employers
  • Statutory Maternity Pay (SMP) is paid for up to 39 weeks at the following rates: –
    • 90% of your average weekly earnings (before tax) for the first 6 weeks
    • £148.68 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks

So, our heavily pregnant mother-to-be is approaching the day her maternity leave starts thinking, quite understandably, about the impact on her life her child is going to bring whilst at the same time, hoping everything is going to turn out fine.

What she almost certainly isn’t thinking about is her workplace pension.

One thing that many employees do not know (along with a surprising number of HR professionals and payroll providers) is that while she is away on maternity leave, her entitlement to pension contributions is the following: –

  • Employee contributes at the scheme percentage of ACTUAL PAY RECEIVED
  • Employer contributes at the scheme percentage of NORMAL (PRE-MATERNITY LEAVE) PAY

Let’s say the Workplace Pension is a 5% contribution by the employee, matched by the employer and that our employee is on £30,000 a year basic salary (which is also the pensionable earnings amount). Let’s also look at the position after 6 weeks of maternity leave and assume our employee receives only the statutory amount.

Based on the above, pension contributions would continue with the employee paying 5% of £148.68 per week – £7.43 per week (so just over £30 per month) – and the employer paying £125 per month. If our employee was to come out of the Salary Exchange arrangement, which is the best route to go, she would then receive basic rate tax relief immediately and the cost would come down from £30 per month to £24 per month. Put another way, her employer who previously had only matched her contribution, is now paying 5 times the amount!

The sad fact is that many women approaching maternity leave simply do not know about the above and, through ignorance, think that Statutory Maternity Pay is so derisory (another argument to be had elsewhere) that they can’t afford to pay a pension contribution from it and stop paying into their pension altogether – which means the employer payment stops too.


So, just before heading out of the door for maternity leave, do the following: –

  • Come out of the Salary Exchange arrangement (employers cannot proactively do this for employees as it requires a change to employment T&Cs that the employee must agree to)
  • And continue with pension payments

Knowing that her pension is in the best position it can be in the circumstances, our employee can head off to contemplate exactly how that pumpkin sized baby is going to fit through that exit designed for a large Brussel sprout…

Further information (on the non-biological aspects of this article) can be obtained by contacting us on 0333 241 3350 or

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.

Peter Murphy DipPFS

Benefits Adviser