Households across the UK are being alerted to the possibility of employer pension blunders that could leave them short by over £12,000 upon retirement. An alarming £12,554 shortfall in pension pot could be the reality for millions due to inaccurate contributions from employers.
The UK's second-biggest investment platform for individual investors, interactive investor, has discovered that some businesses have been incorrectly calculating pension contributions based on statutory maternity pay rather than the full salaries of women. Camilla Esmund, senior manager at interactive investor, warns: "It's not clear whether this is a widespread issue, but it is another reminder of the importance of pension engagement.
"Unfortunately, the pensions system is quite complex - so understandably, it isn't always easy for consumers to know what to look out for, or what to ask. But essentially, the rules are supposed to ensure women still get a full pension payment even while their pay is reduced, but in some cases, it seems this isn't happening, so it is important that women check."
Some employers, seemingly by mistake, continue to base pension contributions on statutory maternity pay (£187 per week after the first six weeks, effective April 2025) instead of the employee's full earnings. Women are advised to meticulously review their payslips and engage in discussions with their employer’s HR division to prevent potential pension losses, reports Birmingham Live.
During maternity leave, a woman earning £35,000 could find herself with a £822 shortfall in her pension over 39 weeks if employer contributions are incorrectly based on her reduced maternity pay instead of her full salary. For those on salaries of £50,000 or £80,000, the pension gap could be £1,307 and £2,276 respectively. Due to investment growth, this deficit could balloon to £4,534 by retirement for a £35,000 earner, and an astonishing £12,554 for someone earning £80,000.
Esmund remarked: "These potential pension errors are yet another barrier when it comes to closing the gender pension gap, with many women struggling to build retirement wealth. On average, women have 35 per cent less pension wealth than men by retirement because they often take years out of the workplace and are more likely to work part-time to care for their family. To help close this gap, it's vital that women get everything they are entitled to, especially on maternity leave.
"At a time when finances are stretched to the limit, it's extremely worrying that women could be missing out on valuable pension contributions. Women often have more than one maternity leave, so they could be missing thousands by the time they reach retirement.
"When you're planning for a baby, your pension and retirement might be the last thing on your mind. But taking a moment to check your pension could make a big difference to achieving your retirement goals. Anything you set aside in your 20s and 30s can benefit from years of investment compounding, which helps your wealth to snowball over time. That is, if you're also keeping a close eye on your fees as this can also eat into your wealth over time if you're overpaying in charges.
"It's important to speak to your employer's HR department and check if their pension contributions will be based on your full pay. In addition, it's crucial to carry on paying into your pension while on maternity leave, as your employer may not pay in at all if you stop contributing. Your contributions will cost less than normal because, while employer contributions are based on your full salary, yours are based on your reduced maternity pay."
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