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Pensions Update

Shared Parental Leave: Pension Implications

For babies due to be born or adopted on or after 5 April 2015 there is now a new more flexible option for employees when considering what time to take off from work to care for their child.

Mothers will still be able to take up to 52 weeks’ maternity leave, including 39 weeks statutory maternity pay, and fathers will be able to take up to 2 weeks’ ordinary paternity leave and ordinary paternity pay. However under the shared parental leave policy mothers will be able to convert up to 50 weeks of their maternity leave (and 37 weeks of their statutory maternity pay) into shared parental leave and pay, effectively sharing their entitlement with their partner.

The new system gives parents considerable flexibility enabling them to choose to take time off together or separately and as one continuous period or in up to 3 different blocks of leave (providing each block is of no less than one week in duration). As a result an employee’s family leave pattern can become quite complex.

A further consequence of the introduction of this new shared leave approach is the abolition of the additional paternity leave provisions introduced in 2011.

From a pensions perspective during any period of shared parental leave continuing membership and accrual of rights under a pension scheme must be provided in a similar way to other types of family leave. In essence this means that where an employee is on paid leave:

  • the employee must be treated as if he or she were working normally and receiving his or her usual remuneration
  • employer contributions will be based on the employee’s normal salary which he or she would have been paid if still in work
  • for defined benefit schemes benefits must accrue as if the member was still in pensionable service during the period of paid leave
  • any compulsory contributions from the employee will be based on the salary he or she is actually receiving
  • where employee contributions are paid under a salary sacrifice arrangement they will be treated as employer contributions and will therefore be based on the employee’s normal salary which he or she would have been paid if still in work.

Employers will need, therefore, to review their existing family leave policies to ensure that they comply with the new statutory requirements with regard to both the introduction of shared parental leave and the abolition of additional paternity pay, taking into account the cost implications of any changes to their existing policies.

If their current policy makes any provision under the pension scheme over and above the minimum statutory requirements, an employer will need to consider whether or not to treat a period of shared parental leave on the same more generous terms. If provided on a statutory minimum basis new mothers may feel prevented from sharing parental leave with their partners because they would lose a more valuable benefit if they terminate their maternity leave (on the enhanced terms) and take up shared parental leave (on a statutory minimum basis). 

In addition whilst there would be no direct sex discrimination in offering the statutory minimum for shared parental leave, there is the risk that a male member might bring a claim for indirect sex discrimination on the basis that he is to all intents and purposes taking a period of what would otherwise constitute maternity leave. It is not yet clear whether such a case for indirect discrimination would be successful, but employers finding themselves in this situation would be advised to consider whether they could objectively justify any such indirect discrimination.

The majority of pension scheme rules are unlikely to have been drawn widely enough to allow for the new shared parental leave provisions. Once the employer has decided upon its shared parental leave policy, the employer and trustees should review the pension scheme family leave provisions both in their scheme rules and member booklets and ensure that they are amended to reflect the new policy. The trustees should also ensure that the administration team is prepared for the new flexibilities and the potential impact this may have on member contributions, and if life cover is not maintained in full over the whole period of a member’s absence on family leave (e.g. periods of unpaid leave) that the insurers are advised of any changes in cover.

For further information on any of the issues covered here or for assistance in preparing any rule amendments to your pension scheme family leave provisions please contact the Pensions team at Irwin Mitchell.

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  • Kate Byers
  • Head of Pension Documents - Senior Associate
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