22 May Covid-19 & Workplace Pensions Q&A
Thank you to Gatwick Diamond who have very kindly let us share an article that one of their Members, Verlingue wrote for their Members Magazine.
Can the employer put their scheme on a contribution holiday?
Guidance from The Pensions Regulator (TPR) expects employers to continue making contributions into their scheme, and we would encourage this if they can.
If you offer a Defined Benefit arrangement, then the position is slightly different, and you’ll need to discuss this with the scheme advisers.
If you have any concerns about whether you can continue to meet your ongoing duties, we suggest you speak to The Pensions Regulator (TPR).
What should employers do if any members want to stop paying contributions?
Members can decide to stop their contributions at any time.
Yet if they want to leave the scheme after the opt out period has ended; they’ll need to contact you about the process they should follow.
Automatic enrolment rules also give employers the option of stopping their contributions, if members decide to stop making contributions. However, if it’s an occupational scheme, you will need to check the scheme rules, and for any other scheme – the contracts of employment as they may have a legal obligation, which means you need to continue paying the contributions.
As an employer it is illegal to induce or coerce employees to opt out of a workplace pension scheme.
What should employers do if any members stop paying into their pension, but they want to continue paying in contributions?
If the member’s contribution stops, you will need to stop deducting contributions from their salary.
Similar to the previous question, employers will need to check to see if there are any conditions that apply to minimum/matching contribution amounts. Your scheme rules or employment contracts may state what happens if the employee stops.
Do employers need to make pension contributions if employees take unpaid leave?
If you’re not paying any salaries, then you wouldn’t need to make any contributions.
The Government have introduced the Job Retention scheme for furloughed employees providing a grant for 80% of wages (capped at £2500 per month) subject to certain conditions. On top of this employers can claim for their National Insurance and 3% band of earnings minimum Auto Enrolment (AE) pension contribution costs.
You’ll need to pay at least the minimum AE employer pension contributions on behalf of your furloughed employees. You can only claim back the minimum AE employer pension contributions on the earnings paid.
The minimum mandatory employer contribution is 3% of income above the lower limit of qualifying earnings (which was £512 per month until 5th April and is £520 per month from 6th April 2020 onwards). For the 2020/21 tax year minimum contributions are calculated on earnings between £6240 and £50,000 a year.
You’ll also need to consider their employment contracts, any scheme rules and how you communicate with your employees before you make any changes to the contribution levels.
If employers need to reduce salaries, do they still need to make pension contributions?
If the salary has been reduced, any pension contributions the employer makes, should be based upon the revised salary. It’s important employers check that any reduced pension contributions are still in line with any specific arrangements they have with employees.
Many employers will be using qualifying earnings as their definition of pensionable pay. If employees’ earnings fall below the lower earnings threshold (£6240 for 2020/21 tax year) in a pay reference period then you will not need to make a pension contribution on their behalf.
If employers are taking on any new employees, should they still enrol them into the scheme?
Yes. Until TPR provide any other advice around new joiners, employers should continue to enrol (or re-enrol at the 3-year cyclical period) any new employees into the scheme in the normal way. This would include an employee who wishes to opt in.
Should employers continue making pension contributions if members are off sick?
Yes. Employers will need to continue deducting contributions from the members’ salaries. Statutory sick pay is part of the qualifying earning rules for automatic enrolment.
However, to help in the immediate situation, the Government is currently updating the rules so that sick pay can be paid earlier. More information can be found at;
If the current situation means that employers cannot make their pension contributions on time, what are their options?
We appreciate that current circumstances will be challenging for employers, however until TPR confirms otherwise, employers should try to make their pension contributions as soon as they can.
If any employers are concerned about how they can continue to meet their ongoing duties, we suggest they speak to TPR.
Can the employer change the certification basis of their scheme?
If the scheme’s contribution basis meets the statutory minimums, then, yes, they can change the scheme’s basis. If they decide to make the change, they’ll need to:
- let their pension provider know
- keep a record of this in case TPR ask for evidence in the future
- tell their employees
What happens if employers need to let some of their employees go either short term or long term?
Under the Coronavirus Job Retention Scheme, all UK employers will have access to support measures. It’s designed to help them continue paying their employees’ salaries during these times, and hopefully avoid having to let some of their workforce go.
If employers do need to let their workforce go, they’ll need to follow the normal rules and process for termination of employment, make any final payments into their pension scheme and complete the notification of leaving process on the scheme.
There is more information regarding guidance for employers and the support available on the Covid19: support for business Gov.uk website by clicking on the following link;
The above information is based on our current understanding of the position for employers. Much of the information has been sourced from the Royal London employer website. Further announcements can be expected from the Pensions Regulator (TPR) so it is possible the above content could be subject to change.