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.