Coronavirus – Workplace pension schemes – What employers need to know

Published by Tom Bulbrook on 3 July 2020

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On 15 June 2020, The Pensions Regulator updated their guidance to employers regarding workplace pension scheme duties, recognising the strain they may be experiencing during these unprecedented times.

They clarified that they will be taking a “proportionate and risk-based approach towards enforcement decisions” whilst working with HM Treasury and the Department for Work and Pensions (DWP) in relation to the Coronavirus Job Retention Scheme’s central guidance on the pensions element of the grant.

The most notable changes are that:

  • From 1 July 2020, staff on furlough under the Coronavirus Job Retention Scheme may work part of the time for their employer.
  • For claims starting on or after 1 August 2020, employers will no longer be able to claim a grant for up to the statutory minimum automatic enrolment (AE) employer contribution – from this date employers will need to pay for their own pension contributions and National Insurance contributions for all staff. Through the Coronavirus Job Retention Scheme, employers will still be able to claim the lower of 80% of staff wages or £2,500 a month, reducing to the lower of 70% or £2,187.50 a month in September and the lower of 60% or £1,875 in October, with the scheme closing on 31 October 2020.

Have employer workplace pension obligations changed?

Employer’s automatic enrolment (AE) duties continue to apply as normal, including your re-enrolment and re-declaration duties and paying contributions irrespective of whether employees are still working or are furloughed.

New employees

All employees should continue to be assessed and automatically enrolled into a qualifying pension scheme if they are eligible.

The option of a postponement period remains available, effectively delaying the assessment of newly eligible employees by up to three months.

Re-enrolment

Employers approaching or carrying out their re-enrolment of staff will continue to receive advance notification of this from The Pensions Regulator, who continue to recommend assessing the workforce on the third anniversary of the initial staging date or duties start date.

Postponement of the workforce cannot be used at re-enrolment, however a later date of up to three months after the third anniversary can be selected to complete these duties by.

Do employers have to continue paying pension contributions?

The obligation for both employers and employees to make contributions is set out in the relevant pension scheme rules or other governing documentation.

Employers must be careful so not to encourage or induce their workforce to reduce their level of contributions, opt-out or select a payment holiday.

Should any employee opt-out or cease active membership, they must be put back into the pension scheme at the next re-enrolment date if they meet the criteria for re-enrolment.

If an employee has opted out or ceased active membership within the 12 months before the re-enrolment due date, employers can choose to re-enrol them, but there is not a requirement to do so.

Employee contributions deducted from salary must be paid to the scheme within specified timescales and must not be used for any other purposes.

Difficulty with making pension contributions

The Coronavirus Job Retention Scheme allows employers with furloughed staff to claim a grant from the Government, including employer pension contributions on the salaries included in the Job Retention Scheme claim, up to the level of the statutory minimum AE employer pension contribution – for claims ending before 1 August 2020.

If employers have concerns on being able to continue making pension contributions they should contact their provider in the first instance who will advise if there is any flexibility to change the due date for payments, or whether they may be able to help you plan to pay contributions over a longer period.

Employers may also wish to consider utilising the government support packages available.

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme will close on 31 October 2020.

Currently, employers can claim a grant up to the lower of 80% of the furloughed worker’s salary or £2,500 per month – for claims ending before 1 September 2020, or the pro-rated equivalent if the member is also working part-time after 1 July 2020. This reduces to the lower of 70% of the reference wage or £2,187.50 (prorated if the member of staff is also working part time after 1 July 2020) in September 2020 and the lower of 60% or £1,875 (prorated if your member of staff is also working you part time after 1 July 2020) in October 2020.

Employers can also claim up to the statutory minimum automatic enrolment employer pension contribution on wages included in the grant for claims ending before 1 August 2020.

Payroll processes and pension contributions – claims ending before 1 August 2020

If making a claim under the Coronavirus Job Retention Scheme, the payroll process should continue as usual.

If employers have reduced furloughed staff’s pay to the lower of 80% of their pay or £2,500 a month, payroll should be run on this amount of pay. If chosen to top up furloughed staff’s pay, payroll should run as normal using this amount of pay.

When paying furloughed staff, employee pension contributions should be deducted from salary as normal.

Both employee and employer pension obligations remain unaffected, with employers still required to upload the contribution schedules to the relevant pension provider within a prescribed timescale and both contributions payable to the provider calculated on the furlough pay.

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, employers are required to calculate and pay across pension contribution as normal. However, employers will also need to calculate 3% of the qualifying earnings of the furloughed staff as part of the process for making the claim for the total grant under the Coronavirus Job Retention Scheme. This is in addition to the existing pension contribution calculation in payroll – not instead of it.

Working while on furlough – this applies from 1 July 2020

From 1 July 2020, staff on furlough will be able to work for employers for part of the furlough period. Employers must have agreed how many hours the member of staff will work for and the pay for these hours.

In each pay period, employers must calculate the total pay (pay for hours worked plus adjusted furlough pay) and pay this through their normal payroll process using this total amount of pay. Both employee and employer pension contributions should be calculated as normal on this amount of pay.

Employers will need to know the amount of furlough pay included in the total pay for the pay period, as it is only on this amount that they may claim a grant for up to the statutory minimum employer pension contribution (for claims ending before 1 August 2020 only).

Employer contributions to the Coronavirus Job Retention Scheme

For claims starting on or after 1 August 2020 employers will not be able to claim for the employer pension contribution on furlough pay.

Under the rules of the Coronavirus Job Retention Scheme employers must still continue to pay employees at least the lower of 80% of their reference wage or salary or £2,500 (pro-rated if the member of staff is also working whilst on furlough) for September and October 2020. However, the grant claimable from the Government reduces to the lower of 70% of the reference wage or £2,187.50 (pro-rated if the member of staff is also working while on furlough) from 1 September. From 1 October this reduces to the lower of 60% of the reference wage or £1,875 (again prorated if the member of staff is also working while on furlough).

If employers have reduced furloughed staff’s pay to the lower of 80% of their pay or £2,500 a month and they are not working part-time during the furlough period, employers should run payroll as normal on this amount of pay in September and October. Pension contributions should be calculated and paid across on this amount of pay.

If employers have chosen to top up furloughed staff’s pay or the member of staff is working part-time during the furlough period, payroll should be run as normal using the total amount of pay.

Employers paying more than the statutory minimum contribution

Some employers voluntarily pay more than the statutory employer minimum AE contribution included in the grant under the Coronavirus Job Retention Scheme.

If paying more than the AE statutory minimum contribution, the excess will not be funded by the Coronavirus Job Retention Scheme. Employers 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 themselves.

Reducing the employer contribution to the statutory minimum

If employers use a Defined Contribution pension scheme and the employer contribution under your scheme is more than the statutory minimum, employers may be able to decrease it to the statutory minimum. However, these cannot legally be reduced to below the statutory minimum.

There are a number of factors which should be considered when deciding to decrease the employer contribution including:

  • Employment contracts with staff and whether any changes need to be made, by agreement. You may wish to seek legal advice on the process.
  • Any agreements held with recognised trade unions or other staff representative forums to discuss or notify of such changes.
  • The rules or governing documentation of the pension scheme used, whether these currently permit employers to reduce contributions to the statutory minimum or whether a change to the scheme rules may be required. If the pension scheme used is a Group Personal Pension, this may be possible by changing the arrangements for paying contributions without the need for a new or amended contract. If unsure of scheme provisions, employers should speak to their scheme trustees or provider.
  • Who has the power under the rules to make changes if employers have a trust-based scheme? This may be the employer themselves, or the trustees or a shared power. If the power is a trustee power or shared power, employers will need to engage with the trustees of the scheme. Even if employers have the power to amend the scheme rules, it may be recommendable to notify the trustees beforehand.
  • Whether there are rules that apply under pensions legislation, even if employment law permits.

Employer consultation requirements

The requirement under pensions legislation to consult on certain changes only applies if employers have at least 50 employees.

Before deciding to decrease employer contributions, employers must carry out a consultation in accordance with a number of rules. These rules include that the minimum period of consultation must be 60 days.

However, if all of the following apply, The Pensions Regulator have stated they will not take regulatory action in respect of a failure to consult for the full 60 days:

  • Employers have furloughed staff for whom they are making a claim under the Coronavirus Job Retention Scheme.
  • Employers are proposing to reduce the employer contribution to Defined Contribution schemes in respect of furloughed employees only. For employees who have not been furloughed, the existing pension contribution rate will continue to apply.
  • The reduced contribution rate for furloughed staff will only apply during the furlough period, after which time it will revert to the current rate.
  • Employers have written to affected staff and their representatives to describe the intended change and the effects on the scheme and on the furloughed staff.

The Pensions Regulator encourages employers to carry out as much consultation as they can. This regulatory easement will be maintained until 30 September 2020 but will be regularly reviewed.

It is expected that employers comply with the full consultation requirements when deciding to decrease the employer contribution if all the above criteria has not been met.

Paying employer contributions less than the AE statutory minimum

In some cases, an employer’s pension contribution may be below the AE statutory minimum employer contribution.

In these cases, the employer may only claim, under the Coronavirus Job Retention Scheme, the amount paid or due to be paid to the pension scheme under the pension scheme rules and not the higher amount of the statutory minimum AE contribution. This is because grants for pension contributions can only be claimed provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.

Automatic enrolment duties for furloughed staff

As with other staff, automatic enrolment duties for furloughed staff apply as normal, and employers should assess them based on the amount being paid to them. This means that if there has been an agreement to reduce their pay, employers will be assessing them based on the reduced amount.

Automatic enrolment

If a member of staff meets the criteria to be put into a pension scheme, employers must enrol them whether they are furloughed or not. Or, they can also use postponement which delays putting newly eligible staff into a pension scheme for up to three months.

If a member of staff triggers automatic enrolment during the furlough period, for example because they turn 22 and their earnings meet the criteria to be automatically enrolled and it is not at the end of postponement period, employers can either put them into your pension scheme, or delay putting them into the pension scheme for up to three months by using postponement.

If a postponement period ends during the furlough period and a member of staff meets the criteria to be put into a pension scheme, employers cannot use postponement again and must automatically enrol them.

The effect of reducing a furloughed member of staff’s pay may mean that they will never meet the criteria to be put into a pension scheme during the furlough period, even when working part of the time. When their pay increases after the furlough has ended, employers must continue to assess them and enrol them if they are eligible. The member of staff can however ask employers to put them back into a pension scheme before this.

Automatic re-enrolment

Employers automatic enrolment and re-enrolment duties continue to apply as normal. If the third anniversary of their staging or duties start date falls during the furlough period, they can choose a date up to three months after the third anniversary to assess their staff.

The re-declaration deadline remains unaffected and will still be within five months of the third anniversary of the staging date or duties start date.

If the date to assess the workforce for re-enrolment falls during the furlough period and any staff meet the criteria to be put back into a pension scheme, employers must do this whether they are furloughed or not.

If the employer has agreed to reduce furloughed staff’s pay, some of them may no longer meet the criteria to be put back into a pension scheme, even when working part of the time. Employers are required to next assess these staff for re-enrolment in three years, but they can ask to be put back into a pension scheme before this time.

Requests to join a pension scheme

Any furloughed member of staff can ask their employer to put them into their pension scheme at any time, including during the furlough period. If they do so in writing, employers must enrol them into the pension within a month of receiving their request.

Employers will have to pay into the pension scheme if they are aged 16-74 and earn at least £520 a month or £120 per week.

The content of this article is for information only and does not constitute formal financial advice.

This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions.

Always obtain independent, professional advice for your own particular situation.

Contact our Financial Planning team on +44 (0)1227 768231 or provide your details on our online enquiry form if you would like to discuss workplace pension schemes or employers legislative duties further.

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