Shared parental leave – pensions implications

The UK Government’s new policy of shared parental leave will have implications for pension schemes.

3rd February 2015

The UK Government’s new policy of shared parental leave came into force on 1 December 2014.  Shared parental leave will generally apply to babies due on or after 5 April 2015 and the new system will seek to provide new parents with greater flexibility in taking time off work to care for a new baby.  Please click here for our employment team’s summary of the new rules and the implications for employers generally.

In making arrangements for shared parental leave, employers should consider the pensions implications.  The pension requirements for shared parental leave apply in a similar way to those for other forms of family leave.  In summary, those requirements are that, where an employee is on paid leave:

  • the employee must be treated as if they are working normally and receiving their usual remuneration.  For contribution based schemes, this would mean that employer contributions would be based on the employee’s normal salary which they would have received 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;

and

  • any compulsory contributions from the employee will based on the salary he or she is actually receiving.

This is the statutory minimum and employers are free to contractually agree greater entitlements with their employees. Some employees may decide to take additional unpaid leave following the birth of a child and any unpaid leave would not be subject to the above requirements.

As this is a new policy, most pension schemes will not currently refer to shared parental leave and many will not have the flexibility to include this. It is therefore likely that amendments will be required to pension scheme rules and member booklets to ensure that they refer to shared parental leave. Schemes should also ensure that their administration team is prepared for the new flexibilities and the potential impact on member contributions from time to time.