The baby's on the way. Now for some financial family planning

Mothers-to-be should get into the savings habit to prepare for a drop in income in the early months of their child's life, says Chris Menon

Despite much improvement over the past five years, UK mothers still fare badly in terms of their level of maternity pay and its duration compared with many of their counterparts in Scandinavia and elsewhere in Europe, according to a new study by the consultancy firm Mercer.

In the UK, the statutory maternity pay is 90 per cent of a woman's average weekly earnings for the first six weeks, then up to £117.18 for the remaining 33 weeks. The last 13 weeks, if taken, are unpaid.

Whereas in Norway, for example, maternity benefit is equal to full salary for 44 weeks or 80 per cent of salary for 54 weeks. In Sweden, parental benefit is payable for a total of 390 days at 80 per cent of full salary (up to a ceiling of approximately £30,500) and a further 90 days at approximately £15 a day.

Niklaus Kobel, an employment specialist with Mercer, told The Independent on Sunday: "UK maternity pay has improved greatly over the past five years, with statutory maternity pay extended to 39 weeks in 2007. However, from a benefit level perspective, there is still a long way to go to reach the top levels of EU provision."

Natasha Freedman is a consultant with Punter Southall Financial Management, an independent financial adviser. She is well aware of the financial pressures that motherhood brings. "The often significant drop in income while on maternity leave can be crippling and the inability to maintain your standard of living is perhaps one of the main reasons why women return to work sooner [than they may want to]. It is a very real problem for households that require two incomes to stay afloat, especially in today's economic climate."

So what should expectant mothers be doing to cope with the financial challenges they will face once the child arrives?

Ms Freedman advises: "In the short term, make savings a habit and budget. Practise living on less and put money aside during your pregnancy to supplement maternity pay while you're off work.

"Make sure you apply for any child tax credits you may be entitled to. Additionally, child care vouchers, available via your employer, are offered to working parents as an effective way to cover the cost of childcare. The scheme allows for parents to substitute part of their salary for vouchers which are exempt from both national insurance and tax up to £55 per week.

"In the long term, put money aside into a tax-free individual savings account (ISA) to fund school fees and childcare costs. Update your will and ensure that you have sufficient life cover and long-term illness or disability cover to protect your family should the worst happen.

"Your baby is also entitled to a £250 child trust fund voucher, which can be invested for long-term growth.

"In addition, try to maintain your own pension contributions during your maternity leave. Compound growth on even small contributions can make a big difference to your eventual retirement pot," she says.

Malcolm Cuthbert is managing director of financial planning at Killik & Co, an independent financial adviser and stockbroker. He recommends that protection policies should be checked so you can be confident you would be covered against all eventualities. In that way, even if your partner dies or falls seriously ill, you should be able to cope financially. To do this, however, requires a good understanding of what level of maternity benefit you can expect to receive and the likely bills you'll face before you return to work.

"It is also important to make a will. It might seem morbid but if you haven't made one already then you certainly should now," Mr Cuthbert adds.

For longer-term security, he advises: "Consider how to invest the child trust fund voucher, take out a stakeholder pension for the new child when they are born – and ask a wealthy friend or relative to be the baby's godfather or godmother!"

Beyond that, it is clearly vital to increase your level of savings and reduce frivolous expenditure prior to having a baby. This will entail careful budgeting and prioritisation. What you should not do, experts emphasise, is economise by abandoning or reducing your insurance cover.

What's more, it's crucial to have a savings cushion in place. Experts recommend that, ideally, people should have at least three to six months' income on deposit. Fortunately, one of the few good points of the ongoing credit crunch is that some banks, desperate for additional deposits, are paying bumper rates to attract new savers.

The financial information service Moneyfacts highlights a number of accounts paying rates above 6 per cent. For example, Anglo Irish Bank, West Bromwich building society and Heritable Bank all currently pay well above this level while still offering instant access to your savings.

Meanwhile, people looking to take advantage of their £3,600 annual tax-free cash ISA allowance can scoop 6.1 per cent from Icesave, 6.08 per cent from Barclays or 6.05 per cent from Egg, again all on an instant-access basis.

Some people may be tempted to break into their rainy-day savings to help with the costs of having a baby. However, Jasmine Birtles from the financial advice website Moneymagpie. com cautions: "They should look to rebuild them as soon as possible once they go back to work."

Of course, as every working mother knows, the problems don't simply disappear when they return to work. The National Childbirth Trust (NCT) is a leading charity for parents and has just launched a national survey to look at the experiences of women who have returned to work following maternity leave.

According to its figures, women make up 46 per cent of the labour force, and by 2010 one in five UK workers will be mothers. Approximately 400,000 women take maternity leave each year.

Within nine months, 65 per cent of women have returned to work, with 21 per cent moving to a different employer. After 17 months, 80 per cent of women are back at work. In the UK, 30,000 leave their jobs each year due to discrimination against pregnant women.

Liz Morris, a researcher at the NCT, says: "The demands of caring for a child can be radically different to the demands of the workplace. Women often face realistic anxieties about juggling their new family and their work commitments.

"Research shows companies who adopt a positive approach to a woman's return to work achieve a smooth transition and a happier and more productive outcome for all those concerned, including work colleagues who also have to readjust," she concludes.

Kate Alewood, 28, a nurse from Darlington, Co Durham, had her baby, George, three months ago and is currently on six months' maternity leave until September.

Kate discovered she was pregnant after only a month. She knew her income during maternity leave would be much less than her normal take-home pay, which was boosted by overtime and unsociable hours, so she immediately began putting money aside. There would also be lots of things to buy for her new baby.

"I already had a mortgage with ING Direct and the pregnancy spurred me on to open a savings account using a direct debit," she explains. "I saved about £150 a month, plus any extras from overtime when I could afford it."

She found the savings especially useful during the first couple of months after George's birth, when her income dropped significantly while her outgoings increased. Her income is now £1,000 a month as compared to £1,500 when she was working.

"If I could afford it I would probably stay off longer. However, I do need something more taxing and am looking forward to eventually returning to work," she adds.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
tv
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
art
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine