Amending Existing Salary Sacrifice Arrangements

HMRC has advised that COVID-19 counts as a ‘life event’, meaning that the terms of a salary sacrifice arrangement could be changed, if the relevant employment contract is updated accordingly, with agreement.

The pension scheme rules are separate from any salary sacrifice arrangement that is part of a furloughed worker’s contract of employment. The obligation in these pension scheme rules is for the employer to pay the total contribution. If the salary sacrifice arrangement is ended, these pension scheme rules will continue to apply to the employer and no contribution will be due from the furloughed worker, unless the rules cater for workers who do not agree to salary sacrifice.

If an employer wishes to change the pension contribution payment obligation in the pension scheme rules or governing documentation to reduce the contribution that they pay, any changes made to the salary sacrifice arrangement from 19 March 2020 do not affect the calculation of the reference wage. This calculation is done as at the furloughed worker’s last pay period prior to 19 March 2020.

Although consultation is generally required where changes are proposed and where there are at least 50 employees, The Pensions Regulator has suggested that they will not take regulatory action in respect of a failure to consult for the full 60 days, where:

• You have 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 DC scheme in respect of furloughed staff only. For staff who have not been furloughed the 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 have written to your affected staff and their representatives to describe the intended change and the effects on the scheme and on your furloughed staff.
We would also encourage you to carry out as much consultation as you can. This regulatory easement will be maintained until 30 June 2020, but TPR will review this date as matters progress.

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