The Pensions Regulator has confirmed that employers must continue to make pension contributions during the coronavirus crisis. We’ve rounded up some commonly asked questions to guide you through the pensions process during this difficult time. Any employer who has concerns about their ability to make payments should contact The Pensions Regulator to discuss their situation and then notify their pension provider of this discussion.
What amount would the employer base their contributions on?
Whatever Pensionable Pay the employee has in the pay period.
What happens if employees are off sick?
Automatic enrolment legislation requires statutory sick pay to be treated as part of qualifying earnings, or as part of basic pay under set 1, 2 or 3 certification. These rules apply to both automatic enrolment schemes and qualifying workplace pension schemes using contractual enrolment. 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 to allow sick pay to be paid earlier. More details are available here.
If the employee decides to stop making contributions given a reduction in wage, should the employer still pay in?
For contract based schemes, unless a contractual obligation exists within the employee’s contract of employment, the employer is not obliged to pay but can choose to maintain their payments. Where an employer is in receipt of a Government allowance for furloughed workers, the amount will be based on the employee’s salary then grossed up to compensate for Employer National Insurance and a minimum 3% employer contribution. There will be an expectation that the 3% employer contribution is put into the pension scheme, irrespective of what the employee chooses to do.
Should the employer automatically reduce the contributions made given the new salary or offer employees payment holidays?
All payments made should continue to be determined by the Pensionable Pay in the respective pay period, if the pensionable pay reduces then we would expect the pension payment to reduce accordingly. Employers should avoid proactively suggesting payment holidays to employees, as this may encourage ceasing membership of the pension scheme.
If the employer operates a salary sacrifice scheme, do they need to maintain the payments?
Salary sacrifice payments made by the employer are a non-cash benefit under a contractual agreement with the employee and are not classed as pay. Employers are likely to be obliged to continue with the same level of salary sacrifice, regardless of the employee’s pay reducing or even ceasing. Employers should check the wording in their salary sacrifice contract to establish if amendments are possible.
Certain events trigger an opportunity for employees to make changes to the salary sacrifice arrangement; these are called ‘life events’ which can significantly alter an employee’s financial circumstances. HMRC have stated that COVID-19 is a ‘life event’ and could warrant changes. If an employee chooses to opt out of an existing arrangement, the pre-sacrifice position is likely to apply. In other words, this may see the (re)introduction of employee contributions alongside employer contributions
Can employers give their employees payment holidays?
There is currently no provision within Auto Enrolment legislation which allows employers to offer employees a premium holiday. To do so would be breaking the law. We have seen no relaxation of that rule from Government or the Regulator. If employers need to discuss specific contribution challenges due to COVID-19, employers would need to take the matter up with The Pensions Regulator.
What should employers do about pensions if employees are made redundant due to COVID-19?
This would be treated in line with any usual redundancy event.