During this global pandemic, many businesses have had to resort to furloughing their staff – a measure introduced by the UK Government via the Coronavirus Job Retention Scheme (CJRS).
If an employer is making a claim under the CJRS the payroll process will continue as normal. Pension contributions will continue to be deducted from employee’s wages but by reference to the actual pay during furlough. This does not apply where pension contributions are paid by salary sacrifice where all contributions are treated as employer contributions and are typically based on notional pre-sacrifice pay rather than actual pay.
Under the CJRS, employer contributions will only be reimbursed up to the statutory minimum requirement (3% of qualifying earnings between £520 and £833 per month). Some employers currently contribute more than the statutory minimum on behalf of their employees, for instance by basing contributions on full basic pay. This means that employers currently paying in excess of the statutory minimum will not be fully reimbursed.
The Pensions Regulator has announced that for defined contribution schemes, employers may be able decrease their employer contributions to the statutory minimum.
Any employer wishing to take this step to will need to consider the following:
- the terms of the employment contracts. In most cases other than trust based schemes, a change will require employee agreement;
- any agreements with trade unions and staff forums; and
- any relevant governing documentation of the scheme used.
Usually, in order to make changes such as decreasing employer contributions, there would need to be a period of consultation with employees for 60 days. This is a requirement under pensions legislation if an employer has at least 50 employees.
The Pensions Regulator has announced it will not take any regulatory action if an employer does not consult if the following apply:
- there are furloughed staff under the CJRS;
- the reduction in employer contributions is for the furloughed staff only;
- the reduced rate will only apply for the furloughed period, after which it will return to the current rates; and
- affected staff have been informed in writing.
This apply until 30 June 2020 but will be reviewed. This may offer some respite for employers who pay more than minimum contributions and who find themselves struggling to pay staff costs.
This will only apply to employers with DC Schemes. For employers with DB schemes, please see our update here