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In these extraordinary times, it may seem unimportant to focus on pensions. However, things will return to normal at some point and it makes sense to be well prepared for “business as usual”. On 20 March, the Pensions Regulator (TPR) issued guidance on COVID-19. The Regulator has confirmed that it will take a proportionate and risk-based approach towards compliance and enforcement decisions, in light of these challenging times, with the aim of supporting employers, providers and savers. For further information, see COVID-19: an update for trustees, employers and administrators.
A workplace pension is a way that your employees can save for retirement, and it’s arranged by you, the employer. Both employees and employers pay an agreed percentage into the scheme based on earnings. All employers must provide a workplace pension, and employees are automatically enrolled if they’re eligible. Employees can choose to opt out if they wish.
This information will be kept up to date to reflect any changes.
What is the Coronavirus Job Retention Scheme?
The Government announced a ‘Job Retention Scheme’, whereby employers who furlough staff will be able to claim a grant of up to 80 per cent of employee wages for all employment costs, capped at £2,500 per month. This means as an employer you can offer furlough pay whilst employees are unable to do their job.
Can I take a holiday from pension contributions?
As an employer, you can’t legally withdraw your employees from any pension scheme. You must follow the opt out rule. Employees themselves must confirm in writing if they wish to take a break from paying into their pension, whether short-term or indefinitely. The employee will then be marked as having left the scheme. You are not allowed to encourage or force employees to opt out of the scheme.
I’ve made employees redundant. Do I have to pay any pension contributions for this?
No. In the same way as tax doesn’t apply to redundancy pay, neither does pension contributions.
Will employees continue to pay into their pension if they have been furloughed?
Individuals will continue to make contributions from their wages to help them to save for retirement, but there remains the option for them to opt-out or cease saving if that is right for them at this time.
The amount your employees will pay into their pension will shift in line with their new furlough pay figure. It’s recommended that they continue to pay into a pension, as employers will still be required to make contributions.
I’ve furloughed my staff. Do I have to pay pension contributions?
Grants under the Coronavirus Job Retention Scheme are intended to support businesses and their employees by covering up to 80 per cent of the costs of employment up to an overall cap of £2,805 per employee. That includes wages, plus employer’s National Insurance Contributions and the minimum employer pension contribution of 3per cent of qualifying wages required under automatic enrolment.
If employers contribute above this amount for furloughed staff, then they will not be able to claim for these additional contributions.
I’m now paying employees 80 per cent of their wages. How will this affect employer pension contributions?
You will still contribute at the same rate, which will be 3 per cent of the 80 per cent, under current legislation.
What are my legal obligations as an employer?
You are legally required to pay into an employee’s workplace pension, unless they make it clear in writing that they wish to opt out. Only the employee can decide if they wish to stop contributions to their pension.
What if my business is struggling to pay contributions?
Where possible, it’s recommended that you continue to pay pension contributions. However, if you are struggling, speak to your pension provider about your options. This may involve discussing options with employees, during unprecedented times, but remember you cannot legally force or encourage employees to opt out.
Do I have to pay into an employee’s pension if they are temporarily not being paid?
No. Pension contributions are calculated based on earnings. If staff aren’t being paid, then you won’t pay into their pension.