The Pensions Regulator has published guidance on how it expects pension contributions to be paid during the current pandemic and, in particular, in respect of employees on furloughed leave.

The guidance is helpful in that it answers some questions about the treatment of "non-standard" pension contributions and also relaxes the time needed for consultation before pension contributions are reduced.

Key points are as follows:

Workers furloughed under the Coronavirus Job Retention Scheme (CJRS)

• Payroll processes should be run as normal in respect of furloughed employees, with National Insurance contributions (NICs), tax and pension contributions deducted in the usual way. (Our interpretation is that where contributions are calculated as a percentage of salary, this would mean applying the same percentage as usual to the amount of salary actually paid).
• The CJRS will reimburse employers the minimum employer auto-enrolment (AE) contributions for their furloughed workers (3% of the employee's qualifying earnings).
• Employers who calculate AE contributions using one of the alternative permitted bases should continue to do this but in addition should calculate 3% of qualifying earnings as part of applying for a grant in respect of the furloughed staff.
• Employers who pay more than the AE minimum will not have the excess contributions refunded. This includes:
  • contributions to an open defined benefit (DB) scheme
  • contributions higher than 3% to a defined contribution (DC) scheme; and
  • contributions to a scheme where member contributions are paid by the employer via a salary sacrifice arrangement.
• The implication though is that all employers can be reimbursed 3% of their furloughed workers' qualifying earnings, even if the scheme is DB or a salary sacrifice arrangement is used.

Reducing contributions to the AE minimum

• Some employers may wish to reduce their pension contributions to the statutory AE minimum. The Regulator points out that an employer's ability to do this will depend on the usual considerations: employment contracts; agreements with providers; scheme rules and need for trustee consent; and any agreements with trade unions.
• In most cases, reducing pension contributions may only be done after 60 days' consultation with the affected members – but see below.

Consulting members before reducing pension contributions

• The Regulator has made clear that the consultation requirements still apply but that it will not take action for a failure to consult for the full 60 days if all of the following conditions are met:
  • The employer has furloughed staff for whom it is claiming under the CJRS.
  • The employer proposes to reduce employer contributions to its DC scheme in respect of the furloughed staff only (not in respect of any staff still working).
  • The reduced contribution rate will revert to the normal rate at the end of the furlough period.
  • The employer has written to the affected employees and their representatives and has described the intended changes and the effects on the scheme and the furloughed staff.
• The Regulator still expects employers to carry out as much consultation as is possible. The regulatory easement on consultation will continue till 30 June 2020 but will be reviewed as matters progress.

General points

• Whether staff are still working or are being furloughed, employers' AE duties continue to apply as normal, including the requirement to re-enrol eligible workers every three years and to re-declare that the employer has met its AE duties.
• Employers whose first re-enrolment date falls in the pandemic period and who are struggling to complete re-enrolment on the third anniversary of their staging date due to Coronavirus may choose a later date up to three months after the third anniversary. The Regulator has set up a re-enrolment date tool to see available dates.
• Unless an employee asks to opt out or reduce contributions (if allowed under the scheme rules), the employer and the member must continue to contribute as required under the scheme rules.
• Employers who are concerned that they may not be able to pay pension contributions as required should speak to their provider to see if there is flexibility to change the due date for employer contributions to a future date. The Regulator also points out government support packages to help businesses with cashflow.

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