The government has introduced several packages to help businesses through the current economic difficulties created by the coronavirus pandemic.
Of particular interest was the Coronavirus Job Retention Scheme (CJRS) which opened for business on 20 April.
What this means for the pensions savings of employees
An employee’s pensionable earnings from a job that has been furloughed for part of a tax year will include the amount that the employer actually pays them during furlough. This could mean a significant reduction for some so care will be needed when topping up pension savings later in the year. It may be worth waiting until after the CJRS scheme has ended and individuals have a clearer idea of what their likely earnings will be. The same may also apply for those who are normally caught by the tapered annual allowance.
What duties does an employer have with regards to auto-enrolment schemes during the furloughing of employees?
An employer’s automatic enrolment duties must continue as normal for both furloughed staff and those who are still working, including re-enrolment and compliance duties.
However, with regard to re-enrolment, employers are allowed three months beyond the third anniversary to assess staff.
Can pension contributions be reduced or stopped altogether?
Employers are allowed to reduce their contributions under AE rules, but not below the statutory minimum of 3% on qualifying earnings (the standard quality test).
If the employer has more than 50 employees it must consult with employees before implementing any reduction. The minimum period for consultation under normal circumstances is 60 days, but The Pensions Regulator has stated that during these difficult times, it will not take action against employers if this period is shortened, provided certain conditions are met.
However, there are other things employers should consider before reducing contributions whether or not there is a requirement to consult. These include:
- Does the change constitute a breach the employment contract? Legal advice may be advised.
- Does it break any agreements reached with trade unions or staff representative bodies?
- Do the scheme rules allow a change?
Employees may also wish to reduce their contributions, or even stop them altogether, during these financially challenging times. The Pensions Regulator is very clear, however, that employers should not induce or persuade employees to do this.
Contributions can be stopped by opting-out of the scheme. Similarly, employees reducing contributions below AE statutory minimum will also be treated as having opted-out. The consequences of this could include losing out on:
- Valuable employer contributions
- Tax incentives offered to pension savers by the HMRC
- Future investment growth
- The chance to re-join the scheme once the CJRS has come to an end. They may have to wait until a future re-enrolment date before benefiting again from their employer’s contribution.
The above has been based on our current understanding as guidance from the government is being updated on a regular basis.