Thousands of women could be missing significant sums from their pension pots due to a “common error” made by employers during maternity leave.
The issue, which may have affected women since auto-enrolment began in 2012, involves employers incorrectly reducing pension contributions to match lower maternity pay.
Women have reported shortfalls ranging from a few hundred pounds to as much as £4,000. Advocacy group Nugget Savings surveyed 236 women about their pension contributions during maternity leave, with more than 100 finding discrepancies.
Many affected women remain unaware of the problem.
Under workplace pension rules, employers must continue making contributions based on a woman’s full salary during maternity leave. However, many companies are wrongly reducing their contributions to match the lower maternity pay received by women.
This error appears widespread and potentially systemic, with employers often blaming payroll software for the miscalculations.
With around half a million women taking maternity leave each year, the scale of underpayments could be substantial
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Katie Guild, co-founder of Nugget Saving said: “We’re concerned we have just scratched the surface of this issue.”
With approximately half a million women taking maternity leave each year, the scale of underpayments could be substantial. The mistake can significantly impact retirement savings due to the loss of compound interest over decades.
Several women have shared their experiences of pension underpayments during maternity leave.
One marketing professional discovered £4,000 missing from her pension pot. While her employer eventually repaid the amount, she received “no apology or explanation” and lost hundreds in potential interest.
Chloe, 29, found her aviation industry employer had underpaid her by £717.22.
Another mother, Sam, was missing £1,400 and had to involve her union to recover the money with appropriate interest.
Not all women have been successful. One mother missing around £250 said her employer promised to “look into it” but has yet to repay the shortfall. This error exacerbates the already significant gender pension gap in the UK.
According to Legal and General, the average UK pension pot for men is £84,205, while women have less than half at just £39,654. The gap begins early in women’s careers at 16 per cent but can double by the time they reach their 40s.
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The regulator has recovered more than £700m in missing contributions since 2012
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By retirement, women’s pension pots are typically 55 per cent smaller than men’s. This disparity stems from multiple factors including lower pay, fewer senior leadership positions, career breaks for childcare, and part-time work. Women are also more likely to waive rights to a partner’s pension after divorce.
Women concerned about missing pension contributions should check their workplace pension portal or annual statements.
They can compare employer contributions before and during maternity leave to identify any decreases. If discrepancies are found, they can then raise the issue with their HR department or employer directly.
Some women have successfully reclaimed missing contributions after highlighting the error. Others have needed union support to recover their funds.
The Pension Ombudsman offers a free, impartial service for complaints that cannot be resolved through workplace channels.
All occupational pension schemes must operate an Internal Dispute Resolution Process (IDRP) before complaints can be escalated.
MP Stella Creasy expressed concern about these pension discrepancies saying: “The problems women have with pensions and their maternity leave are just the tip of the iceberg when it comes to why millions of older women end up destitute.”
Catherine Nicholson, interim director of automatic enrolment at the pension regulator said: “Some employers are making common errors by skipping important steps in respect of calculating pensions contributions.”
The regulator has recovered more than £700m in missing contributions since 2012, but doesn’t have specific figures for maternity-related underpayments.
Harriet Morton-Liddle, co-founder of Nugget Savings, highlighted the lack of clear guidance on the issue.
The mistake can significantly impact retirement savings due to the loss of compound interest over decades
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She said: “We contacted HMRC, The Pensions Regulator and Citizens Advice and even submitted FOI requests but still had no straight answer.”
Much of the online advice was “contradictory”, potentially explaining why employers make these mistakes.
The Pension Ombudsman said it hasn’t seen an increase in complaints about this specific issue.
Women who remain unhappy after going through their pension scheme’s Internal Dispute Resolution Process can submit a complaint to the Pension Ombudsman. Their service is free and impartial.