How to plan your money around parental leave
Preparing for the arrival of a new family member is an exciting time, but also a time when financial worries can crop up.
Whether you’re welcoming your first child or a new sibling, there are three things you need to think about before going on parental leave.
1) How much leave will you take and what income will you have?
A pre-baby financial plan needs to start with getting a sense of how long you and your partner expect to take off work and what kind of income you will have during that time.
There are legal guidelines for parental leave, but many employers offer benefits in addition to the required minimum, so check your employer’s leave and pay policies well in advance of the due date.
Most parents will have these options:
Statutory maternity leave is 52 weeks, which means employers have to allow staff expecting a baby a year off work while keeping their job open for them to return to. New mums don’t have to take the full amount of leave and family finances may play a part in their decision, as statutory maternity pay is paid for 39 weeks. The remaining 13 weeks of leave will be without statutory maternity pay, although some employers provide some pay for this period.
Statutory maternity pay is 90% of your average weekly earnings for the first six weeks and for the remaining 33 weeks, you receive either 90% of your average weekly earnings or £156.66 per week, whichever is lower. Tax and National Insurance are deducted from this amount.
To be eligible for statutory maternity pay you must have been with your employer for at least 26 weeks (more than six months) and be earning at least £123 per week on average. Use the Government’s eligibility checker to see what you may receive.
In addition to maternity leave, biological fathers and partners of primary parents including same-sex partners are entitled to one or two weeks off work after the baby is born. Paternity pay is the same as for maternity pay and there are eligibility rules which include having 26 weeks’ continuous service with your employer.
Shared parental leave
Shared parental leave (SPL) allows mothers to end maternity leave early and then share up to 50 weeks off work with their partner, in the year after their child is born, adopted or placed with them. Both parents can use SPL at the same time – meaning a week when both parents are off work counts as two weeks of leave.
When taking SPL parents could receive statutory shared parental pay for 37 of those weeks – this allowance is shared between both people rather than 37 weeks of pay each. The amount is the same as for maternity leave.
There are specific rules around who is eligible for shared parental leave so people will need to check the details carefully on the Government website. You must be an ‘employee’ of an organisation rather than a ‘worker’, which is how people employed through agencies, as contractors or on zero-hours contracts are often categorised.
New parents who earn less than £123 per week on average may be entitled to maternity allowance, which is similar to statutory maternity pay.
2) Budgeting and planning for one-off costs
Once you have an idea of how long you might take off work and the income you’ll receive, it’s best to draw up a budget to manage spending.
A budget is simply a log of income and outgoings alongside a tally of your total spend in various categories such as food, bills, travel, or socialising. Budgeting is useful because laying it all out on paper or on a spreadsheet can give you a fresh perspective and help gauge if there are areas of overspending. The Money Helper website has a budget planning tool to help you get started.
With a new child on the way there will be an extra category of household spending – or an increase in spend if you already have children – and some big ticket items to budget for.
Make a list of baby-related purchases such as a cot, pram, car seat and travel system, bottle steriliser, baby monitor and so forth. Work out which you would be happy to have second-hand (as there’s a thriving marketplace in baby goods on websites such as eBay, Gumtree and Freecycle). With essentials that you would rather purchase brand new, start researching costs and what you might budget for them, as the costs can vary wildly – a pushchair, for example, can be priced anywhere between £50 and over £1,000.
Keep a budget in the months leading up to the due date to get a grip on your household finances and then use it to forward-plan spending once the baby arrives.
3) Don’t forget your pension contributions
Retirement is the last thing on any new parent’s mind which is why it’s important to think about it well before the baby is due. Most people ought to be putting aside more for their retirement than they currently are and stopping pension contributions for a year or two can have a significant impact on an individual’s overall retirement pot.
If you have a workplace pension, your employer ought to continue making their contributions throughout the time you’re receiving statutory maternity pay. Double check with your employer’s HR department whether these pension payments will continue before you go on leave.
Consider maintaining your own pension contributions if you can afford it, even if it’s a small amount.
Annabelle Williams is personal finance specialist at Nutmeg