Planning for the arrival of a baby involves many complex choices. Among these is deciding how long the mother will take off work to recover from childbirth and care for her newborn full-time. For many mothers, affordability will be a major factor.
While statutory maternity leave in the UK is 52 weeks, statutory maternity pay provides 90% of your usual pay for just six weeks. For the next 33 weeks, you’ll receive a weekly payment of £187.18 (or 90% of your usual pay, if lower).
If you take the full 52 weeks of leave, the final 13 weeks will be unpaid.
That can leave a significant hole in your family’s household budget – and can continue to affect your finances long into the future.
Here’s what to you need to know - and more importantly, how to prepare for it.
A mother on average pay could lose £20,000
According to 2024 earnings data, the average annual earnings for a full-time worker in their 30s is around £40,000, which is a little more than £32,000 after tax. If a mother on this salary decides to take a year of maternity leave, she’ll receive:
Her total pre-tax income for the year will be just short of £10,800.
That’s a shortfall of over £20,000 compared to her usual pay.
Some mothers will be affected more than others
This significant drop in income is something that almost all mothers will need to prepare for, but the problem is magnified in certain life circumstances:
Additionally, it’s worth noting that if you stop working or change employers during your pregnancy, you won’t be entitled to statutory maternity pay, but may be able to claim maternity allowance.
Long-term implications
Beyond the potential difficulty covering new expenses, the maternity pay income gap can affect your ability to save for future financial goals and plan for your retirement.
While your employer will be required to maintain their pension contributions based on your pre-maternity salary, your own contributions will fall proportionally to your new income.
If you’re an average earner who usually contributes 5 per cent to your pension, that’s a loss to your pension of nearly £2,000 over a year. By the time you retire, let’s say thirty years later, that loss could reduce your pension value by around £15,000 (assuming a 7 per cent annual growth rate).
So what can you do?
Part of your essential preparations to grow or add to your family should include financial preparations.
There are several things it would be sensible to do in preparation, therefore.
1. Increase your savings as much as possible
Hopefully, you already have an emergency fund of 3-6 months’ living expenses, which will help you cover the cost of leave. Make sure you and your partner are saving as much as you can afford into that fund so it’s there when you need it.
If you can, try to make spending cuts to allow you to save more.
This will also help you adjust to living on a lower household budget.
2. Check your employer’s maternity policy
Some of the most generous policies in the UK offer six, nine, or even 12 months of full pay.
Make sure you know exactly what you’re entitled to, as this informs how much you need to save.
If you’re preparing to start a family a long time in advance, changing employers to benefit from a more generous policy can be a smart financial move.
3. Look into other government benefits
You’ll be able to claim child benefit of £26.05 per week for a first child and £17.25 per week for subsequent children.
Remember, though, that there is a high-income child benefit charge if you or your partner earns over £60,000, which can equal the benefit paid.
Low-income households could be eligible for benefits such as universal credit or a Sure Start maternity grant (or Best Start grant in Scotland).
4. Plan as a couple
If you’re part of a couple, the financial penalty of pregnancy is not yours to bear alone.
Consider whether your partner could contribute to your pension, so your retirement plans stay on track.
Compare your employers’ parental leave policies and the different ways of sharing leave to find the option that makes the most financial sense for you.
Whatever situation you are in, making sure you start planning as early as possible gives you the best chance of coping with the drop in income.
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