Many employers are making use of the Government’s Coronavirus Job Retention Scheme (CJRS) to access much-needed financial support which will enable them to keep their staff employed during the lockdown period, and potentially beyond.
Under the scheme, employers can claim 80% of a furloughed employees’ usual monthly salary up to £2,500 a month. They can also claim the associated employer national insurance contributions, and minimum auto-enrolment employer pension contribution of up to 3% on that salary.
Employers can choose to provide a top-up salary in addition to the grant, but the scheme will not fund National Insurance or auto enrolment pension contributions on this additional amount.
For most people, this means that, unless they hear otherwise, their own pension contributions and their employer’s contribution will continue at the current percentage, just based on the reduced salary during furlough, rather than the employee’s normal salary.
What do employers need to do with their auto enrolment pensions?
The good news for many employers operating pensions under an auto enrolment scheme is that no changes need to be made to your scheme under the Job Retention Scheme. Your duties as an employer in regard to pensions remain unchanged.
Payroll runs as usual. Tax, National Insurance and pension contributions will be made as usual – simply use the online calculator to check the values. You then upload your contribution schedule to your pension provider as normal, and pay staff and employer contributions.
If, however, you use a different basis for pension contributions other than using banded qualifying earnings, you will also need to calculate 3% of qualifying earnings for furloughed staff when making a claim under the CJRS.
Employers paying more than the statutory minimum contribution
The Government contribution is capped at £2,500 per month, and pension contributions at 3% of the salary as an employer contribution.
If the employer would usually pay more than this in employer contributions, the CJRS only covers the first 3%. Any excess will not be funded by the scheme. As an employer, you should continue to pay this excess as per your contracts of employment.
You are allowed to reduce your contributions under auto enrolment rules (but not below the statutory minimum of 3% on qualifying earnings). If you have more than 50 employees, any change like this would usually involve a minimum 60-day consultation period with staff before it can be implemented. The Pensions Regulator has, however, agreed to not take action against employers if this period is shortened as long as the reduction is applied to furloughed staff only, and only for the time an employee is on furlough.
Regardless of the easing on consultation periods, before making any decisions around reducing your contributions, you need to be absolutely clear that you will not be breaching any employment contracts or scheme rules by doing so.
What about salary sacrifice?
Benefits, such as pension contributions, made through a salary sacrifice scheme cannot be included in the furlough salary. So, as an employer, you can’t claim for extra pension contributions you make under salary sacrifice, but you do have to continue making them.
What if an employee wants to change their contributions?
Whilst the CJRS is designed to help employees just as much as employers during this time, a loss of a fifth of their salary may hit some employees hard. As a result, some employees may wish to reduce their contributions, or stop them altogether.
This is possible, but as a responsible employer, it’s important to remind employees that they will be missing out on valuable employer contributions and tax incentives, as well as potential future investment growth. They can re-join the scheme in the future, but as an employer, you are not obliged to re-enrol them within 12 months of them opting out so the implications may be longer-lasting than they are anticipating.
And no matter how helpful you think it may be to reduce your pension contributions in the short-term, you should never actively encourage an employee to opt out of auto enrolment. It’s a statutory offence.
What if you’ve taken on new staff?
Any new staff will have to be assessed and, if eligible, put into a pensions scheme, just as before. However, it is (and always has been) possible to postpone this by up to three months.
What about re-enrolment?
Re-enrolment is due to take place on the third anniversary of your auto enrolment staging date. For some employers, this will be happening around now. You cannot postpone this entirely, but you can move your assessment date back by up to three months, giving yourself a little breathing room if you need it.
If you’re an employer struggling to make pension contributions
Despite the Government’s best efforts at providing financial support for employers, some will no doubt still be struggling. If this is the case, and you are concerned about your ability to make your pension contributions, speak to your pension provider. They may be able to offer some flexibility to help you through this difficult time.
You could also consider some of the other government support packages which may provide the help you need.
It remains for us to say that, of course, all of this is subject to change. It’s based on the legislation and guidance available to us at the time of writing. But there’s the potential for things to change quickly as the country adjusts to the current situation. It’s important to keep an eye on the latest government announcements, as we will be doing!