Being financially prepared for parental leave

Being financially prepared for parental leave
Parents planning to take parental leave must be prepared to adjust to having a reduced income. Here are some tips on how to get by with less money.

Parents planning to take parental leave must be prepared to adjust to having a reduced income. Here are some tips on how to get by with less money.

New parents registered for Quebec’s parental insurance program (QPIP) have the option of claiming benefits under either the basic plan or the special plan. Under the basic plan, maternity and paternity benefits, and those provided during the first seven weeks of parental leave, represent 70 percent of take-home pay. The other weeks are paid at 55 percent. Under the special plan, all benefits are paid at 75 percent, but the leave period is shorter. As of 2018, the maximum earnings used to calculate parental insurance benefits is $74,000.

Regardless of which plan they choose, parents earn less money during parental leave. For example, under the basic plan—the more popular option—a parent who earns $770 a week would receive $539 during the weeks at 70 percent and $423.50 during the others. Under the special plan, the same individual would receive $577.50 a week. Some parents can take this temporary decrease in income in stride, but for others, such as single moms or parents who work at minimum wage, it can be difficult to make ends meet.

Pro tips

We asked Lucie Dal Molin, a financial advisor at Montreal’s ACEF family savings credit union, how parents-to-be can start preparing for living on a reduced income right from the moment they find out they are expecting. Here are her tips:

1. Take a minute to crunch some numbers using the benefit calculation simulator on the QPIP website. Once you’ve picked a plan, you cannot change your mind.

2. Go over who will be paying for what during the leave period so that the split is fair. Keep in mind that the individual taking the longest leave will have the lower income.

3. Save up what you can before your baby is born. For instance, try cutting back on dining out and other non-essential spending. You can also save by shopping around for the lowest insurance, phone, and cable rates.

4. Keep track of your budget for at least one month by noting your expenses and income. Think about any new expenses you will have after your baby is born (diapers, clothes, toys, stroller, accessories, etc.). This will give you a better idea of how much money you need per week to get by.

5. Buy only the essentials. Ask other parents what items they could not do without. Shop in second-hand stores and see if friends have anything they are willing to lend or give away.

Good to know

During your leave, you cannot contribute to employment insurance or parental insurance. You are also unable to contribute to your Quebec pension plan (RRQ). However, this should not affect the annuity you receive when you retire, as the months for which you receive parental benefits may be excluded from the calculation of your annuity.

Does your employer offer a group pension plan? While it may be difficult to continue making contributions with a reduced income, making no contributions during your time away may leave you with a lower pension when you retire. To avoid this, some employers allow their employees to buy back these months later. Of course, this would be another expense you would have to plan for in your budget.

As for group insurance plans, you must continue making your premium payments during parental leave to keep your benefits. Once again, this may be hard on your pocketbook. To give yourself some breathing room, ask your boss if you can suspend some of your benefits.

 

Photo: gettyimages/aleksandarnakic

 

Naître et grandir

Source: Naître et grandir magazine, May–June 2018
Research and copywriting: Nathalie Vallerand
Scientific review: Sophie Mathieu, postdoctoral researcher at Brock University and lecturer in sociology at the University of Montreal