PREGNANCY can be a financially worrying time, but careful planning and knowing your rights can help to ensure that your little bundle of joy does not end up costing you bundles of extra cash.
All women employees are entitled to 26 weeks of statutory maternity leave, regardless of how long they have worked for their employer.
Provided that you have worked for the same employer for at least 26 weeks at the beginning of the fifteenth week before your baby is due you will be entitled to statutory maternity pay, too. This means that you need to have been employed for about ten months on the date that the baby is expected to arrive.
If you qualify for maternity pay, you will also be eligible to take an additional 26 weeks’ unpaid leave, giving a total of 52 weeks’ statutory maternity leave. However, you may find that you have both contractual and statutory rights to maternity leave and pay. You need to look at your contract of employment to find out what your contractual rights are.
This means that your first port of call, once you discover that you are pregnant, should be your human resources department. Most big employers have a standard policy and, as a general rule, contractual rights will be better than statutory ones. If they are not, you can ignore them and rely on your statutory rights.
Anna Sofat, director at AJS Wealth Management, the independent financial adviser (IFA), says: “With statutory maternity pay, all women receive 90 per cent of their salary for the first six weeks and a minimum of £106 a week for the remaining 20 weeks. After the 26 weeks, most leave is unpaid.”
To cover the period of reduced pay, try to make extra savings before the birth. If there is going to be a prolonged period when you stop work to care for the baby, remember to make best use of all tax allowances. For example, if you are with a partner who works, any cash should be invested in the non-taxpayer’s name so that interest is paid gross.
If you belong to your company’s employee share scheme, this should continue during maternity leave, provided that you can afford to make the contributions. However, Ms Sofat says: “If you need to encash your shares, take some advice on timing and tax implications. You will still have your capital gains tax allowance but some shares are subject to income tax, so you may want to encash these at a time when your earnings are low or nil to reduce your liability.”
You should also consider pension arrangements during maternity leave. Donna Bradshaw, a financial planning strategist at IFG Group, another IFA, says that you are in a strong position if you are a member of a pension scheme into which your employer makes contributions.
She says: “If you are a member of a defined-contribution scheme, where the contribution is known and the benefits at retirement are dependent on the size of your fund — examples include money-purchase occupational schemes, personal pensions and stakeholder schemes — your employer’s pension contributions must continue to be paid in full during the ordinary 26 weeks of maternity leave. This includes taking account of any pay increase or bonus that would have been paid had you not been on maternity leave.”
If you are a member of a final-salary scheme — where the pension at retirement is dependent on years of service and your salary — the benefits you accrue are the same as if you had been working on normal salary.
For periods of additional maternity leave, over and above 26 weeks, you may not be entitled to receive employer pension contributions unless specified in your contract.
The self-employed can continue to pay into a pension, but gross contributions are limited to £3,600 a year. Anna Bowes, of AWD Chase de Vere, the IFA, says: “It is a good idea to maintain this payment because it can provide an independent pension for the woman at retirement.
“However, if you and a partner have both been working, it will be tricky enough getting used to one salary before you can start saving. This is why it is vital to budget well in advance of losing the salary so that you can be relaxed about money at such a joyous time.”
The position in respect of the state pension has improved for mothers taking time out to look after their children. Ms Sofat explains: “Women in receipt of child benefit for children under the age of 6 now automatically qualify for credit for the basic state pension and state second pension.
“If for some reason you are looking after a child but are not receiving child benefit, you will need to apply to Revenue & Customs for home responsibilities protection. This will ensure that you are registered for pension rights.”
If you are struggling to survive on one income, don’t despair: there are other options. Ms Sofat says: “Many women work part-time. Make a monthly budget and monitor your income and expenditure. This will also help you to feel on top of things. Often it’s the lack of control that leads to unnecessary panic.
“If you are on a low income, make sure that you check your benefit rights. These will include child benefit, child tax credit and the working tax credit, to which your partner may be entitled.”
Case study:
SANDY OBHRAI, 30, and her husband, Sanjay, 32, from Ashford, Surrey, found that preparation was the key to ensuring that their finances were not overstretched when she became pregnant.
Their daughter, Jeeya, is now 1 and they are expecting their second child in November. Sandy, left, a senior e-business analyst, says: “Initially, I wasn’t really aware of all my maternity rights, but my company helped me and I arranged a meeting with my human resources department.
“Pension arrangements weren’t too much of an issue because I had already withdrawn from the scheme. My husband and I decided to put our money into buy-to-let property as part of our retirement planning strategy.
“I received full pay for the first six weeks and then about 10 per cent of my salary. As we knew my salary would drop we made extra savings before I stopped work and were careful about budgeting.”
Thanks to this forward planning, the couple have not found life too much of a financial struggle so far, but with another baby due so soon after the first, they must budget carefully.
Sandy says: “It will probably be a bit more difficult when the second baby arrives, although I’m lucky to have a mother-in-law who helps with childcare, so that won’t be another financial drain on us. Another big bonus is that my company is helpful and well informed about my rights.”
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