Furlough and Pension contribution obligations #COVID19 #coronavirus

The Pension Regulator (TPR) have updated and added to their #COVID19 information and provided further clarity in relation to employers who have furloughed staff.

The TPR state that they ‘will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of supporting both employers and savers’.

So what are the employers pension obligations during this pandemic?

‘Automatic enrolment (AE) duties continue to apply…, including … re-enrolment and re-declaration duties. This is the case whether your staff are still working or are being furloughed as part of the Coronavirus Job Retention Scheme’.

TPR provide the following:

Do I have to continue paying pension contributions?

The obligation for… contributions is set out in your pension scheme’s rules or other governing documentation.

Your staff may choose to either reduce their contribution level (if the scheme rules allow this) or opt out or cease active membership of the scheme….. However, you must not encourage or induce them to choose this option….

Unless a member of your staff asks to opt out of their workplace pension or reduces their contributions, you and your staff members must continue to make the contributions required under the scheme at the correct time.

Any staff contributions you deduct from their wages must be paid to the scheme and not used for any other purposes.

If you’re struggling to make pension contributions

We appreciate that this is a challenging time in terms of cashflow and resources. The government recently announced that the Coronavirus Job Retention Scheme would include the employer’s statutory minimum AE contribution. If you make a claim for a grant (to cover the lower of 80% of furloughed worker’s salary or wage or £2,500 per month), you will also be able to claim the statutory minimum employer pension contribution on those wages.

If you think you may not be able to make your pension contributions, contact your provider in the first instance to explore whether there is flexibility to change the due date for payment of employer contributions to a future date or, whether they may be able to help you plan to pay contributions over a longer period. You could also consider using the government support packages, which are there to help with cashflow.

[Furlough] Payroll processes and pension contributions

Even if you are making a claim … your normal payroll process still runs as usual. Deductions such …. as pension contributions … continue to be made from your furloughed member of staff’s wages… pension obligations remain unchanged….

The Job Retention Scheme does not require you to make any changes to your existing pension arrangements or your payroll processes. The current scheme rules and contribution requirements will continue to apply…

Some employers calculate their pension contributions on a different basis and do not use banded qualifying earnings. This may be because they have chosen to certify under set 1, 2 or 3 and pension contributions are calculated from the first penny of earnings.

Where this is the case you will calculate and pay across your pension contribution as normal. However, you will also need to calculate 3% of the qualifying earnings of your furloughed staff … for making the claim for the total grant… This is in addition to your existing pension contribution calculation in payroll not instead of it.

Employers paying more than the statutory minimum contribution

… If you are paying more than the AE statutory minimum contribution, the excess will not be funded by the Coronavirus Job Retention Scheme. You should continue to make the correct contributions due under the scheme and in this case will have to pay a proportion of the pension contribution cost yourself.

Reducing the employer contribution to the statutory minimum

If you use a DC pension scheme and your employer contribution under your scheme is more than the statutory minimum, you may be able to decrease it to the statutory minimum. However, you cannot legally reduce your contributions to below the statutory minimum.

There are a number of factors you should consider:

  • Your employment contracts with your staff and whether any changes need to be made, by agreement….
  • Any agreements you have with trade unions or other staff..forums .
  • governing documentation of the pension scheme you use,… If the pension scheme you use is a Group Personal Pension it is unlikely that the contract permits a reduction and you and your furloughed worker may need to enter into new contracts with the provider. …speak to your scheme trustees or provider.
  • Who has the power under the rules to make changes… Even if you have the power to amend the scheme rules, we would recommend that you notify the trustees beforehand.
  • rules that apply under pensions legislation, even if employment law permits. For example, employers with at least 50 employees with a DC pension scheme, are legally required to consult with members if they are making changes that decrease employer contributions.

PAYadvice.UK 10/4/2020

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