It has been confirmed, that the new Job Support Scheme by HM Treasury, will not cover employer pension contributions, raising questions and concerns about how employers will comply with auto-enrolment obligations.
Under the new scheme, pension contributions or class one employer national insurance will not be covered, and remain payable by the employer.
In the coming weeks there will be more information as to how employers should calculate pension contributions in accordance with the new scheme.
As the Government has begun to slowly withdraw support, this does not come as much of a surprise. The furlough scheme was parred back in August, with employers having to pay the minimum auto-enrolment contributions as well as national insurance; and the new scheme leaving the burden with the employer, is hardly a surprise.
Tom Selby, senior analyst at AJ Bell said that, “Rishi Sunak has said he only wants to protect ‘viable’ jobs, and it seems that viable jobs includes an ability and willingness to support employees saving for retirement.
Obviously, the news of a continued government support scheme will undoubtedly be a lifeline for many, but they will be expected to pick up more of the tab now than previously. Despite the support offered, an unemployment spike towards Christmas is inevitable.
The lack of contribution to pensions, according to Kate Smith, head of pensions at Aegon, could send a negative signal about saving into a pension. The importance of pensions being protected by the job retention and kickstart schemes, sent a powerful message about the importance of a pension saving. It will now be down to employers to ensure the costs are covered and contributions are paid correctly.
There are fears that with the new rules, the potential for errors is huge and could cause confusion when adhering to pension liabilities, and therefore should be some leniency to account for this.
The Job Support Scheme, which will run from November for six months. The new scheme is part of the Government’s ‘Winter Economy Plan’ and will support those who are working fewer normal hours due to a decrease in demand. This time, the scheme will only be open to employees who are working at least a third of their normal hours. These hours will be paid for by their employer, whilst the Government and the employer will pay the two remaining thirds. An employee working 33% of their usual hours would therefore receive 77% of their normal wages.
Head of tax, Tim Stovold at accountancy firm Moore Kingston Smith pointed out that the scheme was almost self-financing. The employee who earns say, an average of £25,000 but is only working one third of their hours, will have a monthly salary of £1620, £463 of this will be paid by the Government. The HMRC will then receive back £338 in tax and NI, making the net cost to the treasury £125. For higher earners, the Treasury by this notion, will receive more than it pays out.