The six crucial finance questions every woman must ask before maternity leave

Mothers see their monthly earnings fall by an average of 42 per cent in the five years after their first child is born, according to the Office for National Statistics.

That figure helps explain why planning the finances around a baby matters long before the due date.

Research indicates that the “motherhood penalty” – the long-term career and financial impact on women after having children – is a major contributor to the declining birth rate in the UK, highlighting the importance of understanding these financial factors when planning a family.

“Having a child affects income very significantly and impacts every aspect of life, so it’s so important to talk to your employer long before you go on maternity leave so you can plan and budget,” advises Harriet Davis, financial adviser at independent financial advisers Smith & Pinching.

Here are six finance questions she thinks every woman should ask before going on maternity leave…

1. What is my employer’s maternity pay policy?

“Statutory maternity leave entitles you to 52 weeks off, regardless of how long you’ve been with your employer, but that doesn’t necessarily mean that you’re entitled to Statutory Maternity Pay (SMP) or what your maternity pay will be,” explains Davis.

“SMP covers you for 39 of the 52 weeks that you could have off from work. During that period, you will receive different levels of income.

“Week 1 to 6 is 90 per cent of your average earnings, and then weeks 7 to 39 is £194.32 per week or 90 per cent of your average earnings (whichever is lower).”

However, the significant drop in income comes in weeks 40 to 52.

“The last 13 of those 52 weeks are unpaid and there is no income at all,” says Davis. “There are some employers who offer enhanced pay, but not all.”

If you do have this benefit, Davis advises checking how many weeks of enhanced pay you’re entitled to, and whether it requires a return to work commitment.

2. What happens to my pension or company car?

If your only family car is the company car, that may not be included when you go off on maternity leave.

“This can feel quite harsh, but if that’s not part of your benefits package in your contract, then a vehicle will be an added household cost,” says Davis.

Make sure you also speak to your employers about pension contributions while you are on maternity leave.

“During maternity leave, employer contributions must continue based on your pre-maternity leave salary rather than the reduced statutory maternity pay level,” says Davis.

“However, your own personal pension contributions are based on the salary you receive, so there could be a reduction.”

She recommends carefully checking your contact to see if during the tricky unpaid 13 weeks, your employer continues pension contributions. “Not all do,” she adds.

3. Which government benefits am I eligible for?

Couples with a joint household age wage over £60,000 often want to know if it’s worth claiming child benefit. “It is advisable to register, even if it means opting out of receiving the payments to avoid charges and extra taxes,” says Davis.

There are many reasons for this, but the key one is that it entitles you to national insurance credits which go towards your state pension.

“The new state pension requires 35 years of qualifying years. Maternity leave can create a gap in that national insurance record if earnings during that leave fall lower than the threshold,” explains Davis.

She recommends always checking what you are entitled to if you’re on a lower salary.

“If your household income drops significantly during those unpaid weeks, a universal credit claim might be worth exploring,” says Davis. “If you are on universal credit and you qualify for those benefits, you may get access to a Sure Start maternity grant.”

A Sure Start maternity grant is a one-off payment of £500 to help towards the costs of having a child.

According to the government website, you usually qualify for the grant if both of the following apply:

– you’re expecting your first child, or you’re expecting a multiple birth (such as twins) and have children already– you or your partner already get certain benefits.

In addition, anyone who is pregnant is entitled to an NHS maternity exemption certificate for free prescriptions and free NHS dental treatment throughout pregnancy.

Working parents who earn up to £100,000 can get up to 30 hours of free childcare a week for children aged from nine months old until school age in England.

However, Davis encourages new parents to factor in all the extra costs.

“While the hours themselves may be free, you must factor in the true cost of full-time nursery placements,” advises Davis. “Providers can charge for extras, meals, and additional hours, so even with the free hours and extra wraparound costs – it can all run into many thousands of pounds a year.”

5. What happens financially if I return to work part-time?

“You have the right to request flexible working from their first day of employment now, but your employer still could decline that on business grounds,” says Davis.

She highlights that there are also many ripple effects of reducing work hours.

“Salary will reduce proportionately, which will affect things like tax, national insurance, pension contributions and childcare costs,” says Davis.

“So, you need to have a clear picture of what your net take-home pay would look like on reduced hours. Ask yourself, how much is this going to cost not just now, but also going forwards? Remember that a reduced income could also affect a mortgage application or a remortgage.”

6. How can I ensure my long-term financial security?

“It should be a shared responsibility to make sure both parents have equal opportunity to a full-time career after having a child. It shouldn’t be a default to one parent,” says Davis.

The long-term finances of a “primary parent” must be taken into consideration if they make a career sacrifice.

“We have cases where the partner who is still working full-time makes pension contributions on behalf of the person who is on maternity leave,” says Davis.