Financial planning for maternity leave

2020 brought us many challenges. Working from home. An upsurge in baking sourdough bread at home, of all things. Along with many other new opportunities. And, although possibly unsurprisingly, there is now talk of a Baby Boom in 2021. But with this comes the question as to how many families are ready for this lifestyle change. If you are joining this anticipated baby Boom, have you started to consider financial planning for maternity leave?

Do you know the costs of parenthood? What does maternity leave mean to you? Have you thought about your options, and how it will leave you financially as a family?

This blog explains the key factors around maternity leave, maternity pay and how our financial planning experts can make sure you are in a financially stable position ahead of time. Afterall, this should be a positive, happy time for you and your family, so financial preparation every step of the way will make your pregnancy and parenthood so much more enjoyable.

What is maternity leave?

Maternity leave is the period away from the workplace, historically taken solely by the mother, before and after the birth of her baby.

Eligibility for maternity leave is based on several factors, one of which is at least 26 continuous weeks of employment with your company, before the ‘qualifying week’ (15 weeks prior to the expected due date).

Statutory Maternity Leave is made up of 52 weeks in total, split as the first 26 weeks Ordinary Maternity Leave and the last 26 weeks Additional Maternity Leave. The full 52 weeks of Maternity Leave is not mandatory, but you must take two weeks as compulsory leave after your baby is born (additional weeks may be required, depending on which industry you work in).

An alternative to traditional maternity leave being taken entirely by the mother, is to split up to 50 weeks’ leave between both parents - Shared Parental Leave (SPL). A maximum of 37 weeks’ leave is paid. And the 50 weeks can be shared by taking up to three blocks of leave each, which allows for much more flexibility where required.

How is maternity pay calculated?

This is where you will see the benefits of financial planning for maternity leave, as you may need to be prepared for quite a drop in pay!

You will receive Statutory Maternity Pay (SMP) for up to 39 weeks:

• For the first six weeks, you will get 90% of your average weekly earnings (before tax)  
• Then, for the next 33 weeks, you will be paid whichever is the lower - 90% of your average weekly earnings or £151.20.   

Your employer may advise you, or you might prefer, to use up any accrued Annual Leave to avoid using up your maternity leave. This means you will still be paid your usual income during this period, so it is worth considering if you are concerned about the financial impact.

If you are organised in advance of your pregnancy, you could start to deliberately build up your Annual Leave to add on to your maternity leave. And remember, whilst you are on maternity leave, you will continue to accrue more Annual Leave, and retain the same employee rights as if you were working your usual hours and job role.

It is worth noting here that these are the Government Guidelines, your employer may award you more favourable terms in your contract of employment.

What if I don’t qualify for maternity pay?

If you do not meet the maternity pay eligibility criteria, there are other forms of income and benefits you can apply for. Your employer should provide you with information on these at the time you notify them of your pregnancy. Make sure you apply for any benefits you are entitled to even if you have never used the benefit system before.

If this is the case, then financial planning is even more important to help get you through your time out of work.

Budgeting for your maternity leave

Knowing exactly what you have coming in and going out is crucial. Because the drop in income after your first six weeks can be quite harsh, particularly if you are the main income earner in your household, you simply cannot afford to take chances by guesstimating the numbers when starting financial planning for maternity leave.

If you are fit to work during your maternity leave, think about using your allocation of ‘keeping in touch days’ as an additional income. Whilst you might not necessarily want to go in to work, the bonus is that for ten days, you will be paid your usual wage as well as your normal maternity pay. It might just help that little bit and is worth looking into.

Afterall, there will be plenty of additional purchases in the coming months. And from then onwards, continual spending just for this new little person. So, you may need to forego some luxuries!

Now is the perfect time to assess any spending habits and lifestyle changes you and your family may need to make. Be brutally honest about it, and you may be surprised at what a difference it can make.

Try not to rely on credit cards to get you through. Spending can easily escalate when you think you can pay the balances back over time and can also spiral out of control if you are not strict with your repayments.

Our earlier blogs have mentioned saving by cutting back on grocery bills, cancelling Direct Debits for dormant subscriptions, and reviewing your service providers to look for any cost savings.

You may need to consider your car – is it going to be big enough? Is it safe to be carrying your new-born? Can you cut down on other costs associated with your car? How about your mortgage? Is now a good time to consider remortgaging to allow for flexibility?

All these will form part of our expert financial planning advice.

How Simpson Financial Services can ease the pressure of financial planning for maternity leave

We know how important it is that, as a new parent-to-be, you are as relaxed and free from unnecessary stress as possible. You really do not want to be thinking about how on earth you will make it through maternity leave financially.

And we also know how difficult it can be to stretch out that maternity pay, especially when you have been used to some of life’s little luxuries.  

We are able to access the most up to date financial data and products on the market. And all financial plans are bespoke, customised to meet your circumstances.

So, discussing your current financial situation, savings, investments, and financial planning for maternity leave with our expert independent financial advisors will give you peace of mind and start you on your journey to motherhood in the best possible way.  Simply get in touch to begin the conversation.