Three important things every mum needs to know about money

When we start a family it’s easy to get caught up in the joys of bringing a new human into the world – and the worry, hard work and exhaustion that can come with parenthood. 

But what can often get left behind in those busy years is financial planning, especially when it comes to the parent who stays at home. And, despite the introduction of Shared Parental Leave, eight out of nine stay-at-home parents are mothers. 

This means that women are often at a disadvantage when it comes to financial freedom and long term financial security – as we see in the Gender Pension Gap.

We don’t think that is right or fair. So we have decided to put together a helpful guide on the most important financial areas mums need to think about. 

If you are a mum already, or are planning to start a family, please do read this guide and take any actions you need. Don’t rely on someone else to take care of you financially, or hope that things will ‘just work out’ somehow. You have financial responsibility for yourself – and it feels good when you are making informed choices and taking positive action for yourself! 

Three important things every mum needs to know about money

Money management (and financial protection) is simpler than you think when you know your rights. And to help you, in this guide we’re going to look at three important financial and legal areas for mums:

  1. Maternity leave and pay (whether you are employed, self-employed or not working)
  2. Saving for a pension as a mum – how much you need and how to find the money
  3. Your entitlements to your spouse or partner’s pension if you divorce or they die

1) Your maternity leave entitlements

When you have a baby in the UK you are usually entitled to take paid time off work. How much time, and how much pay you will receive depends on a few factors. 

Let’s look at your maternity leave and pay entitlements if you are:

What are your maternity leave entitlements if you are employed?

If you are employed, you are entitled to Statutory Maternity Leave of 52 weeks. This consists of:

  • 26 weeks of Ordinary Maternity Leave 
  • An extra 26 weeks of Additional Maternity Leave

You do not need to take this leave if you do not wish to. However, you must legally take two weeks of leave after your baby is born, and four weeks leave if you work in a factory. 

You may also be entitled to contractual maternity pay as part of your employment package. You will need to refer to your contract and/or company maternity policy to check this.

It is important to note that you have a number of rights while on Statutory Maternity Leave. These include:

  • You can ask for flexible working arrangements for when you you return to work 
  • Your employment terms, such as your pension contributions are protected 
  • You have extra rights if you are made redundant

If you are an agency worker, you can check your maternity rights here.

How much is Statutory Maternity Pay?

While you are on Statutory Maternity Leave you are entitled to up to 39 weeks of Statutory Maternity Pay (SMP):

  • For the first six weeks you are paid 90% of your average weekly earnings before tax
  • For the next 33 weeks you are paid £172.48 or 90% of your average weekly earnings (whichever is lower).

In order to receive SMP you need to provide your employer with either a letter from your doctor or midwife, or your MATB1 certificate within 21 days of your maternity leave start date. 

When you receive SMP, it is paid in the same way as your wages (for example, monthly or weekly) and tax and National Insurance are deducted.

If you believe your employer isn’t paying you the right amount of SMP or is incorrectly refusing to pay, you should contact HMRC.

What are your maternity leave entitlements if you are self-employed?

If you are self-employed you have no entitlement to maternity leave. However, you can claim Maternity Allowance, which is paid for up to 39 weeks so you can take time off work.

You can claim for Maternity Allowance once you are 26 weeks’ pregnant and receive payments from up to 11 weeks before your baby’s due date. 

To claim Maternity Allowance you will need to complete a Maternity Allowance (M1) claim form

How much is Maternity Allowance?

Your amount of Maternity Allowance will depend on how many Class 2 National Insurance contributions you’ve made in the 66 weeks before your baby is due.

In order to receive £172.48 a week for the full 39 weeks you need to:

  • Have been registered with HMRC for at least 26 weeks in the 66 weeks before your baby is due
  • Have paid Class 2 National Insurance contributions for at least 13 of the 66 weeks before your baby is due.

If you’ve not paid any Class 2 National Insurance contributions, you will only be entitled to £27 a week Maternity Allowance.

Maternity Allowance is usually paid every two or four weeks straight into your bank, building society or credit union account.

What happens if you haven’t paid enough National Insurance? 

If you’ve paid less than 13 weeks of Class 2 National Insurance, HMRC will contact you after you apply for Maternity Allowance and give you the option to top up your contributions to increase your Maternity Allowance. They’ll tell you how many extra contributions you need to get the full amount. (Class 2 National Insurance contributions are £3.45 a week for the 2023/34 tax year.)

Once your extra contributions are linked to your Maternity Allowance application, your payments will be increased and backdated if needed. Though please beware this can take several weeks.

What are your maternity pay entitlements if you are not working?

What if you aren’t working or self-employed? Are you entitled to any maternity pay? 

If you work unpaid for your spouse or civil partner’s business, you will receive a Maternity Allowance of £27 a week for up to 14 weeks. 

And if you are employed or have recently stopped working you can get Maternity Allowance of £172.48 a week or 90% of your average weekly earnings (whichever is lower) for up to 39 weeks.

As before, to claim Maternity Allowance you need to complete a Maternity Allowance (M1) claim form

If you aren’t eligible to receive any form of maternity pay, you may be eligible for Universal Credit or Employment and Support Allowance. Check to see what benefits you may be entitled to here.  

2) Saving for a pension as a mum

You’ve probably heard about the gender pay gap. But fewer people are aware of the Gender Pensions Gap. This is the percentage difference in pension income between men and women. And, according to the latest data from the government, the Gender Pension Gap for private pensions, currently stands at 35%.

So why does the Gender Pension Gap exist? There are a few reasons women have a much smaller pension pot than men. Here are some of the most common:

  • We earn less on average
  • We take more time off for childcare and other caring duties
  • More of us work part time

To help ensure you have enough to live on when you retire if you are a mum, we’re going to explore both your State Pension entitlement and saving for a private pension.

Learn more about the Gender Pension Gap in episode three of The Pension Confident Podcast.

Your State Pension entitlement

To get any form of State Pension you will need at least 10 qualifying years on your National Insurance (NI) record (these years do not need to be in a row). During these 10 years one or more of the following would need to apply:

  • You were working and paying NI contributions
  • You were getting getting NI credits
  • You were paying voluntary NI contributions

It is important to remember that even if you are away from the workplace, your years as a stay-at-home parent still qualify towards your state pension through NI credits.

If you are registered for child benefit and your youngest child is under 12, you will get National Insurance (NI) credits for the time you spend at home.

To qualify for the full State Pension, you will need a total of 35 years of NI contributions or credits by the time you retire. To find out how much State Pension you are entitled to you can check here. And you can check your National Insurance record for gaps here.

The full State Pension is currently £203.85 a week (£10,600.20 a year) for tax year 2023/24 but is set to rise in April by 8.5% in line with the ‘triple lock’ agreement. The current age at which you can claim it is 66. This will rise to 67 by the end of 2028

If you want to increase your State Pension and you can wait before claiming it, you can choose to defer it. If you defer your State Pension for more than nine weeks, it will rise each week. The rise is equivalent to:

  • 1% for every nine weeks you defer
  • 5.8% for every 52 weeks you defer

So if you defer for one year, you will get an extra £11.82 a week (£614.64 a year).

Saving for a private pension as a mum

Research shows that 21% of adults in the UK have no private pension, and just 16% of self-employed people are saving into theirs. 

If, like many people, you are relying solely on the State Pension for your retirement income (and you’re entitled to the full amount) it means you’ll be living on just £10,600.20 a year. But is this enough?

According to Retirement Living Standards, if you are single when you retire, you would need:

  • £14,400 a year for a minimum lifestyle
  • £31,300 a year for a moderate lifestyle
  • £43,100 a year for a comfortable lifestyle

And a couple would need: 

  • £22,400 a year for a minimum lifestyle
  • £43,100 a year for a moderate lifestyle
  • £59,000 a year for a comfortable lifestyle

To give you an idea of how much you’d need to save up for your pension, here’s what different sizes of pension pots could pay out per year for 20 years:

  • £285,000 could pay out up to £20,000 a year
  • £425,000 could pay out up to £30,000 a year 
  • £575,000 could pay out up to £40,000 a year

(You can check how much income your pension could generate using this Pension Calculator.)

To plug the gap, you may decide to start your own private pension or top up an existing plan that you may have paid into previously. 

How to save for a pension as a mum

Even investing a tiny amount every month now will make a difference to the kind of lifestyle you can afford when you retire. So how can you find the money to put into a pension if you are a stay-at-home mum, or working part time around your children? 

Firstly, it’s also worth checking that you don’t already have a pension pot you have forgotten about. You can check here. And don’t forget about tax relief. If you pay tax, you could also get tax relief on your pension contributions. These effectively mean that the government adds money to your pension pot. 

So, if you are self-employed, and a basic rate taxpayer you get a 25% tax top up; for every £100 you contribute to your pension, you’ll get another £25 from the government, making it £125. If you are a higher or additional rate taxpayer you can claim further tax relief through your Self Assessment tax return.

Although there’s no limit to the amount you can pay into your personal, self-employed or contractor pension, there are limits to the amount you can contribute and still receive tax relief. The limit is currently 100% of your income, up to a maximum of £60,000.(You can read more about pension top-ups here when you are self-employed here.)

If you have a limited company, any contributions you make to your pension through it could be treated as an allowable business expense, and may be offset against your corporation tax bill.

If you work – even part time – for an employer and are at least 22 years old, have not reached State Pension age, earn more than £10,000 a year, and are not already a member of a suitable workplace scheme, by law your employer must offer you a workplace pension scheme and contribute towards it. 

If you earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you in their scheme. However, if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf.

3) Your rights to your partner’s pension if you split up (or they die)

If you aren’t working at all, or you are working full time around your family, you may be relying on your partner or spouse’s pension for your future financial security. But what happens if you split up

If you get divorced from your spouse, you can ask the court to split their pension with you in a process called a Pension Sharing Order (PSO). With a PSO you will be able to take a share of their pension immediately. You may also be able to join their pension scheme or move it to your own pension.

Or you may decide to ask for a pension attachment or earmarking order. This redirects some or all of their pension benefits to you when they start withdrawing.

In recent years, the increase in DIY divorces have meant that more people have overlooked pensions when dividing up money and property. So please do seek legal advice regarding what you may be entitled to and how best to secure it as part of your settlement. 

But what if you aren’t married? Unfortunately, as part of a cohabiting couple you can make no claims on your ex-partner’s pensions if you split. 

So if you are raising children with a partner and you have made a family decision for you to stay at home while your partner works, or for you to work part time or around the children, it is important to protect yourself financially by starting your own private pension. It’s not unreasonable to make contributions to this from the family income. 

You also don’t have an automatic right to benefit from your partner’s private pensions if they were to die, but it will usually be paid to you if you are named formally as a ‘nominated beneficiary’.

If your unmarried partner dies, you would not benefit from their estate either. If you wished to make a claim against their estate, you could do so under the Inheritance (Provision for Family and Dependants) Act 1975. You would need to have been either ‘living as husband and wife’ for a period of two years before their death, or you must have been ‘maintained by’ or financially ‘dependent on’ your partner, and they must have made no proper provision for you.

This demonstrates why having an up-to-date will is so important. If you or your partner don’t already have one, it’s wise to make one as soon as possible. And if your partner has not yet done so, ask them to nominate you as a beneficiary on their pension.

What to do now

So what can you do now to protect yourself financially, and ensure you are getting everything you are entitled to financially as a mum? Here are our quick, take-away tips for each section.

Our maternity leave tips: 

  • If you are currently on maternity leave, pregnant or planning for a baby, make sure you are receiving the leave and pay you are entitled to. 
  • If you need to, look into topping up your National Insurance contributions to receive your full Maternity Allowance. 

Our pension tips:

  • Check your entitlement to the full State Pension and consider topping up if you need. 
  • If you don’t already have a private pension that will plug the gap left between the State Pension and the income you will need for the lifestyle you want when you retire, consider starting one now.
  • Look for ways you can reduce outgoings to put away enough money each month. Or ask your working partner to help you with the money you need to pay into your own pension. 

Our splitting up/bereavement tips:

  • If you are getting divorced, make sure your ex-spouse’s pension is taken into account when dividing up money and property. 
  • If you are not married, ensure you are protected by asking your partner to make you a nominated beneficiary of their pension, by ensuring you both have up-to-date wills, and by starting your own private pension. 

Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.

About PensionBee

PensionBee can help you combine your old pension pots into one online plan that lets you keep track of your balance, make flexible contributions, invest in line with your values and make withdrawals from the age of 55. For more information, visit PensionBee.

Learn how long your pension could last with the PensionBee Pension Calculator.

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