Parental Leave and Pensions Explained: Key Rules for Defined Benefit and DC Schemes

In this article, we explain how employee pension rights are treated during periods of parental leave which covers maternity, paternity, and adoption leave. This topic is particularly relevant to the CII R04 exam and could easily feature in the client scenarios of the AF5 or R06 exam.

This article is correct as at 30 September 2025 and is relevant to examinable tax year 2025/26.

Pension rights during parental leave depend on the type of scheme and whether the leave is paid or unpaid as detailed below:

Defined Benefit and Career Average Schemes

Paid Parental Leave

• Pension benefits must continue to accrue as if the employee is still on their pensionable salary before parental leave.
• Employer contributions must make up the shortfall (since employee contributions are based on reduced actual pay).
• Schemes may still allow AVCs.

Unpaid Parental Leave

• Schemes may allow (but are not required) to provide accrual during this period.
• However, employment before and after any unpaid leave must be treated as continuous service.

Any death benefits linked to salary are based on pre-leave salary.

Defined Contribution (DC) Schemes

Paid Parental Leave

• Employer contributions continue, based on pensionable salary before parental leave.
• Employee contributions are based on actual pay received.
• If contributions are matched, the employer must continue matching the employee’s pre-leave contribution level.

Unpaid Parental Leave

• No requirement for the employer to contribute unless stated otherwise in the contract of employment.
• No requirement for the employee to contribute.

Death benefits linked to salary are based on normal salary throughout the period of leave.

Salary Sacrifice Arrangements

• Under salary sacrifice the employer takes on full responsibility for the agreed pension contribution.
• The employer must continue contributing at the agreed level, even during parental leave – as long as the salary sacrifice arrangement is still active.

A typical CII R04 question could include:

Emily is a member of her employer’s defined contribution pension scheme and is about to start maternity leave. She will receive statutory maternity pay for 39 weeks, followed by 13 weeks of unpaid leave.

During her maternity leave, pension contributions

1. will stop completely once her earnings fall below the lower earnings limit.
2. from her employer must be based on her pre-leave pensionable salary during paid leave.
3. must continue at the same level throughout both paid and unpaid leave.
4. from the employee must be maintained at her normal pre-leave level throughout in order to continue to receive the employer contributions.

Correct Answer: B

During paid maternity leave, the employer must continue making contributions to a defined contribution scheme based on the employee’s pensionable earnings before the leave began. Employee contributions are based on actual earnings received. During unpaid leave, there is no legal obligation for either party to contribute.

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