Shared Parental Leave: implications for pension schemes

Shared Parental Leave: implications for pension schemes

Published:

Author: Stephen Phillips

Applies to: England, Wales and Scotland

From 5 April 2015, employees may be entitled to a new type of family leave and pay: Shared Parental Leave (SPL) and Shared Parental Pay (ShPP).

The Employment Rights Act 1996 was amended to include provision for SPL by the Children and Families Act 2014 with effect from 1 December 2014. However, the arrangements did not come into force until 5 April 2015. This article considers how the changes may impact occupational pension schemes.

In summary

Under the new arrangements, employees or their partners may choose to end their maternity or adoption leave or pay early, with the remaining period of leave becoming available as SPL and the remaining pay being available as ShPP, to be shared with the other parent.

Parents will be able to decide how to take their SPL - for example, simultaneously, consecutively or with gaps between leave. SPL must be taken within 52 weeks of the date of birth or placement for adoption.

The main change is that the Additional Paternity Leave period of up to 26 weeks is no longer available in respect of babies whose expected week of birth is on or after 5 April 2015 (or for children placed for adoption on or after that date). Instead, SPL may be available to fathers.

Ordinary and Additional Maternity Leave, Ordinary and Additional Adoption Leave, Ordinary Paternity Leave (of 2 weeks) and (unpaid) Parental Leave continue to be available.

However, Additional Paternity Leave may still be taken by fathers of babies with an expected week of birth (and children placed for adoption) before 5 April 2015. Additional Paternity Leave could therefore potentially be taken until April 2016 and there will be an overlap between the two systems.

The new rules are complex and it is likely to take employers some time to get to grips with the practicalities of SPL. Employers may not therefore have fully appreciated the implications for their pension schemes.

Implications for pension schemes

Occupational pension scheme rules invariably cover the benefits and/or contributions applicable during periods of family leave. This is likely to be expressed in terms of Ordinary and Additional Maternity Leave, Ordinary and Additional Paternity Leave and Ordinary and Additional Adoption Leave. These provisions (in particular, any references to Additional Paternity Leave) are likely to require updating to reflect the introduction of SPL.

Although employers have some options relating to the pension and death benefits to be provided during periods of SPL, these are subject to the statutory requirements which are broadly:

  • during paid SPL, members of pension schemes continue to accrue rights in the scheme, in a similar way to the previous legislation;
  • for defined benefit schemes, pensionable service continues during paid leave as if the employee was working normally. Compulsory employee contributions are based on the actual pay received; and
  • for defined contribution schemes (including personal pension and stakeholder schemes), during paid leave, employer contributions continue to be based on the pay the employee would receive if he or she was working normally. Compulsory employee contributions continue, but based on actual pay received.

Note that employee contributions paid through a salary sacrifice arrangement are treated as employer contributions to the pension scheme and should therefore continue as if the employee was working normally.

Action points

In light of the new family leave provisions, pension scheme rules should be reviewed, as amendments are likely to be required.
A member communication should also be prepared, or the member booklet reviewed and updated as necessary to reflect the new position.

Further information

More information on the rules of Shared Parental Leave from an employment point of view can be found here.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.