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Important updates

Over the weekend detailed guidance from the Pensions Regulator was published regarding the treatment of pensions salary sacrifice for furloughed staff under the Coronavirus Job Retention Scheme (CJRS)

Where salary sacrifice is in operation for an employee, for which you are making a claim under the grant (CJRS), the 80% claim can only be made on the post-sacrifice pay.

The treasury have confirmed that furlough grants must be passed to the furloughed employee in full (with no deductions for any pension salary sacrifices). The pay during the furlough period should therefore be treated as the post-sacrifice pay.

This means the full pension payments will be an employer cost and you may have higher employment costs than you had anticipated for any staff who are furloughed and making salary sacrifice pension contributions.

Practically you will need to work out the notional pre-sacrifice pay based on treating the furlough pay as your worker’s post-sacrifice amount. You can then calculate the total employer pension contribution as normal.

Johnson Fleming have produced a calculator and can support you with these calculations to ensure you are paying contributions correctly.

You may be able to change your scheme rules so your contributions match the auto-enrolment statutory minimum (which is 3% based on Qualifying Earnings), please see the update below (9th April) regarding regulatory easement for furloughed employees.

Please contact your Johnson Fleming Consultant to discuss if you have any questions regarding this.

If you currently pay more than the auto-enrolment employer minimums into your Workplace Pension you may be able to reduce this, for any staff you have furloughed.

This means you are able to pay employer contributions based on the amounts which can be reclaimed in full under the Coronavirus Job Retention Scheme - 3% of an employee’s qualifying earnings (up to a £2,500 maximum)

There are however some important things to think about including whether you can do this in line with your current employee contracts (as you may have included specific contribution levels in these) and if your scheme rules allow this (which may need to be checked with the pension provider)

Reducing employer pension contributions usually requires consultation, however The Pensions Regulator have announced a regulatory easement to the usual 60 day notification period (required for companies with more than 50 staff).

The relaxation will apply where:

  • There are furloughed staff for whom you are making a claim under the Coronavirus Job Retention Scheme.
  • You are proposing to reduce the employer contribution to your workplace pension in respect of furloughed staff only.
  • For staff who have not been furloughed their 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.

You must also write to your affected staff to describe the intended change and the effects on the scheme and on your furloughed staff.

Please contact your Johnson Fleming Consultant to discuss if you have any questions regarding this.

If an employer cannot cover staff costs due to Covid-19, they may be able to access support to pay wages through the Coronavirus job retention scheme. This will entail classifying staff as ‘furloughed workers’ – that is, workers away from work due to exceptional economic conditions. It basically means that staff can be kept on the payroll rather than being laid off.

The Government announced  that the Coronavirus job retention scheme to run initially for 3 months from the 1st March 2020, but has recently extended this the scheme to run until the end of June 2020.

Employers can claim a grant of up to 80% of the furloughed employee’s wages capped at £2,500 per month maximum per furloughed worker, as well as auto-enrolment minimum pension costs, and employer national insurance contribution costs. Employers can pay the difference between the 80% and the workers full pay, but they don’t have to.

The Government has provided welcome detail on how the furlough scheme will work in relation to pension contributions. On top of the 80% of pay up to £2,500 which has been widely publicised, the scheme will also pay employers NI and minimum auto- enrolment pension contributions of 3% of Qualifying Earnings. This may not meet your full normal pension payments, depending on your pension structure, Full detail is available at https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job- retention-scheme

It is important to note that there is no relaxation from the government of the need to pay employee pension contributions and ceasing payments will be a breach of auto-enrolment rules and there is no clear guidance that the Regulator will take a different approach to this breach during the current crisis.

As an employer you are not permitted to stop/reduce contributions if your employee is still paying contributions at the statutory minimum level (or the minimum as stipulated in their contract of employment).

An employee may request to reduce their contributions. If their contribution falls below the statutory minimum contribution, then you are not obliged to continue employer contributions. However, you may do so if you wish. Suggesting or requesting an employee reduce payments below auto-enrolment minimums would be encouraging employees to opt-out for auto-enrolment purposes and would be a breach of auto-enrolment regulations. If an employee does opt-out then they can opt in again in the future providing they meet the auto-enrolment eligibility criteria at that point.

If an employee takes unpaid leave and does not have a salary, then you do not have to make an employer contribution as payments are based on pay in the pay period. However, you may continue to pay either the total pension (employer and employee) or simply continue with the employer contribution only at your discretion.

Market Volatility remains high, but we have always assessed funds based on volatility in high volatility markets. The moves we are seeing are not unexpected, but part of the normal investment cycle. The unique and unpredictable cause of the market volatility - Coronavirus combined with an initial oil price shock – just highlights that forecasting short term markets and avoiding drops is not a practical approach.

The long term nature of pensions means having a suitable asset allocation for long term growth is the key to returns over these very long time frames.

We are on hand as always to answer any member concerns, but generally get few even in very volatile markets. We are not planning to communicate to members as highlighting a drop can cause more concern and encourage people to take action at what may not be a good time.

 

Although sharp market falls understandably cause concern, we would emphasise that investments should be viewed as long-term in nature and we would not recommend a short term change. The US Dow, the world’s largest stock market, has seen its 5 largest absolute falls in a single day in the last month. However it has seen the 5 largest rises too. Change would take time and change in volatile markets risks missing a market recovery as much as it limits a further fall. Employers should continue to review their default fund as part of a regular governance process, but from a long term viewpoint.

At times like this, many people can benefit from the reassurance provided by professional advice. If your employees would like to speak with an adviser we can put them in touch with our advice team.

Individuals are currently only allowed to access their pension funds from age 55 onwards. Any promotion that your employees see offering to ‘unlock’ their pension is almost certainly a scam. Scams are generally more prevalent during uncertain times and employees should be wary of unsolicited offers. Johnson Fleming would recommend that anyone considering accessing their funds early seek professional advice.