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Maternity absence: is clarity in pension rights long overdue?

September 2008 - Pensions. Legal Developments by Eversheds LLP.

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THE LAW GOVERNING MATERNITY LEAVE AND pension rights is often criticised as lacking cohesion, due to the amount of conflicting legislation relating to the subject.

Recently announced changes to maternity rights in the form of the Maternity and Parental Leave etc and the Paternity and Adoption Leave (Amendment) Regulations 2008 (the 2008 Regulations), published on 30 July 2008, and amendments to the Sex Discrimination Act (SDA) 1975 are a reminder that current legislation is far from clear.

CURRENT LEGAL FRAMEWORK

The continuation of terms and conditions during maternity leave is governed by ss71-75 of the Employment Rights Act 1996 and Regulations 9 and 17 of the Maternity and Parental Leave Regulations 1999 (MPL Regulations 1999). A woman’s terms and conditions continue to apply during ordinary maternity leave (OML) as if she were not absent, except terms regarding remuneration. The MPL Regulations 1999 state that remuneration is any sum payable to an employee as wages or salary.

There is real debate over whether pension contributions fall within this definition of remuneration, as contributions are paid to the trustees of the scheme or relevant pension provider, and are not directly ‘payable to an employee’. The view that contributions are not directly payable to an employee supports the approach that pension contributions are benefits and should continue throughout maternity leave. Further, neither ‘wages’ nor ‘salary’ are defined, adding doubt over whether pension rights are ‘remuneration’.

Separate to the above employment law, social security law provides that pension benefits must be maintained during paid maternity leave (Schedule 5 to the Social Security Act (SSA) 1989). Therefore, when statutory maternity pay or contractual maternity pay is payable, employers must continue contributions to defined contribution schemes or count such periods as pensionable service in defined-benefit schemes.

For the sake of completeness, it is worth mentioning the recently amended s6A of the SDA 1975. For women with an expected due date on or after 5 October 2008, it removes the distinction between OML and additional maternity leave (AML) when determining the continuation of terms and conditions during maternity leave. However, there is a specific carve-out in the SDA 1975 in respect of ‘remuneration’ and the employee’s membership of or benefits under an occupational pension scheme.

The 2008 Regulations also remove the distinction between OML and AML as used in the MPL Regulations 1999. However, the 2008 Regulations state that the obligations contained in the SSA 1989 are unaffected.

From the above, it is clear that there is conflicting legislation dealing with the issue of pension rights during maternity leave. This position is not helped by further conflicting advice from the government, with the Department for Business, Enterprise and Regulatory Reform lending support to the view that only paid maternity absence is treated as pensionable, while HM Revenue & Customs favours the view that unpaid ordinary maternity absence is pensionable.

CONFLICT WITH EU LAW

In addition to the above, consideration must be given to EU legislation:

The Equal Treatment Directive (76/207 EEC) provides that there must be no discrimination in contributions to occupational pension schemes – this applies equally to maternity leave. It makes no distinction between paid and unpaid periods of maternity leave.

  • The Pregnant Workers Directive (92/85 EEC) (PWD) provides that ‘rights connected with the employment contracts of workers’ must be ‘ensured’ during maternity leave.
  • Boyle v Equal Opportunities Commission [1998] held that the accrual of pension rights under a non-contributory occupational scheme was a ‘right connected with the employment contract’ for the purposes of Article 11(2)a of the PWD.
  • Land Brandenburg v Sass [2005] provided that taking statutory maternity leave should not interrupt the employment relationship, nor the ‘application of rights derived from it’. Given the above, there is doubt as to whether the UK has correctly implemented EU law. This uncertainty could give rise to potential claims by employees against employers for non-compliance with EU legislation.

COMMENT

Given the lack of clarity in the existing law, employers generally have a choice to treat all maternity absence as pensionable or only paid maternity absence as pensionable.

The generally accepted approach has been the latter. Whatever approach is adopted by employers, it should be clearly consistent with the scheme rules and contracts of employment. Employers therefore need to weigh up the cost of providing pension contributions throughout maternity leave against the ‘worst-case scenario’; that legal clarity will emerge at some point possibly requiring retrospective changes to UK legislation, which could in turn give rise to equality claims. Clarity for pension rights during maternity absence is long overdue. By Alison Wild, solicitor, and Jenny Mann, trainee solicitor, Eversheds LLP. E-mail: alisonwild@eversheds.com; jennifermann@eversheds.com.

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