Pension Contributions and Statutory Payments
23rd July 2024
Different pension schemes attract different rules when it comes to making statutory payments to employees. The first thing to ascertain is what type of pension it is your scheme administrator is running.
Net pay arrangement
Pension deducted from gross before tax is taken (for example Smart)
Relief at source (gross pay arrangement)
The scheme administrator claims basic rate of tax from HMRC and adds it to pension pot. For example standard Nest scheme.
Salary sacrifice
Employee gives up part of their salary in exchange for additional employer pension contributions. All contributions under salary sacrifice are considered employer contributions.
Net pay and relief at source pension schemes are regulated by the same guidance. However, salary sacrifice schemes have different rules when it comes to pension contributions.
For net pay and relief at source schemes – during the first 26 weeks of leave, also known as Ordinary Maternity Leave (OML), an employee has full employer pension rights based on the salary they enjoyed prior to going on leave. This means that, even though employee contributions are now based on a percentage of their maternity leave, employer contributions remain constant with their annual salary.
During the last 26 weeks, also known as Additional Maternity Leave (AML), for net and relief at source pensions, full employer contributions must continue whilst the employee is receiving pay (weeks 27-39). Employee contributions continue to be raised against the SMP paid. No contributions are mandatory during the final unpaid 13 weeks of leave.
If the scheme is salary sacrifice, the employer has to pay full pension for the entire 52 weeks, as all pension contributions under salary sacrifice rules are classed as employer contributions.
This third point is crucial as it means that any employer operating a salary sacrifice scheme, must continue to pay the full amount of contributions throughout the maternity period since you cannot make a salary sacrifice deduction from statutory parental pay.
Get In Touch
For more information or advice on pension contributions and statutory payments, contact your local Whitings LLP office today.
Disclaimer - All information in this post was correct at time of writing.
