The Covid-19 (Coronavirus) pandemic has multiple ramifications for businesses in every sector. Its implications for pension schemes are huge. Despite the government’s confirmation in March that employer minimum auto-enrolment contributions will be covered under the Coronavirus Job Retention Scheme (CJRS) for furloughed workers, the defined contribution savings space has been adversely affected.
As a result of the financial difficulties caused by the pandemic, some employers are reported to be failing in the fulfilment of their statutory duty to make pension contributions, whether with advance discussion with trustees or not.
In response to the crisis, The Pensions Regulator has temporarily relaxed its enforcement of auto-enrolment obligations, meaning that employers are unlikely to be pursued in the short term over any missed payments; though the obligations are not actually waived. Trustees usually have 90 days to report late payments and that period is currently extended to 150 days.
Furlough arrangements also create an additional pensions challenge. An alternative to redundancy, lay-off or unemployment, the CJRS enables employers to claim up to 80% of furloughed employees’ salary, capped at £2,500 per month. Under the CJRS, the government also covers employer national insurance and minimum auto-enrolment contributions for furloughed workers of 3% of qualifying earnings, on top of 80% of their salary.
Many employers use salary sacrifice arrangements for member contributions. Employees who have participated in a salary sacrifice arrangement will receive the government’s 80% furlough payment based on the lower, post sacrifice salary. As a result, they will be worse off than those who did not if their employer only chooses to pay the minimum amount. These employees may well expect that their employer pays the sacrificed contributions in full, and may not look kindly on any delay or failure to do so. The Pensions Regulator has now issued guidance with detailed calculation examples on this subject.
Meanwhile, employers which normally pay more than the auto-enrolment minimum, and are relying on the government’s 80% rebate for employees on furlough, will have to make sure that the furlough agreement covers any reduction to their own contribution and any increase to member contributions that are needed to meet overall auto-enrolment requirements.
The Pensions Regulator has confirmed that while ordinarily reducing the level of employer pension contribution requires a 60-day consultation period with employees, it will not enforce that requirement in the current circumstances.
Vikki Massarano is a partner at Arc Pensions Law.