Pensions briefing: claims for employers' pension contributions are allowed to an extent under the CJRS, but scheme amendments/contractual changes may need to be made for furloughed employees

Claiming employer contributions

At the time of writing, HMRC has issued seven updates to the original guidance on the Coronavirus Job Retention Scheme (CJRS), first published on 26 March. Several other guides have now been published, including guidance on the extent to which employers can claim for employers’ pension contributions under the CJRS.

Broadly speaking, an employer can apply for a grant that covers 80% of the usual monthly wage costs of furloughed employees, up to £2,500 a month, plus the associated employer national insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that subsidised furlough pay.

The pension contributions that can be claimed are limited to the level of mandatory employer contributions under the statutory automatic enrolment regime, even where the contributions paid are greater than and/or not being made to an auto-enrolment pension-type arrangement.

So, to work out the claim under the CJRS for pension contributions, HMRC explains:

  1. you start with the amount you are claiming under the CJRS for your employee’s wages;
  2. you deduct from that the minimum amount your employee would have to earn in the claimed period to qualify for employer mandatory contributions under the automatic enrolment regime – this is £512 a month for periods before 6 April 2020 and £520 a month for periods on and from 6 April 2020; and
  3. multiply by 3%.

Grants for pension contributions can be claimed by employers under the CJRS up to the cap, calculated as above, provided the employer pays the whole amount claimed to a pension scheme for the employee as an employer contribution.

No statutory override

There is currently no legislation which provides for a furlough override of any contract or trust provisions which apply to member and employer contributions and accrual of benefits under pension schemes. Employers would be well advised to check scheme-governing documentation to establish how furloughing would be treated under the relevant scheme provisions, and whether contributions and benefit accrual continue and, if so, on what basis in the circumstances. Scheme amendments may require to be made if the statutory minimum automatic enrolment requirements are to be adopted, unless there is further legislation which provides that the statutory minimum becomes the overriding position for furloughed workers. Employment contract terms should also be checked.

In the event that employee pension contributions are paid under salary sacrifice arrangements, special calculations will of course be required if contributions are to be made to the pension scheme under those sacrifice arrangements.

Pensions Regulator easements

In a defined contribution pension scheme where the employer’s contribution is more than the statutory minimum, The Pensions Regulator (TPR) recognises that employers may look to make reductions possibly even to the statutory minimum level. Before reducing pension contributions, employees may require to be consulted, with a minimum consultation period of 60 days. TPR encourages as much consultation as is possible. However, TPR has confirmed that under regulatory easement, to endure until 30 June 2020, it will not take regulatory action where there is a failure to comply with the 60 days, in cases where all the following conditions are met:

  • staff have been furloughed and a claim is being made for them under the CJRS;
  • the proposal is to reduce the employer contribution to the defined contribution scheme in respect of furloughed staff only (and existing rates will continue for non-furloughed staff);
  • the deduction will only apply for the furlough period; and
  • affected staff and their representatives have been written to, to describe the intended change and the effect on the scheme and the furloughed staff.

If these criteria are not met, TPR expects full compliance with the consultation rules.

Employers would be well advised to seek legal advice before looking to make any such changes, as there are several issues that may need to be addressed as part of such an exercise, e.g. changes may need to be made to employment contracts. The documentation governing the pension scheme may not permit the reduction of employer contributions, or require that a particular process be followed and completed to implement such a change.

TPR has noted that it appreciates this is a challenging time for employers and, in light of that, it will be taking a proportionate, risk-based approach towards enforcement decisions, with the aim of supporting both employers and savers.

It is to be hoped that in these difficult times the implementation of the CJRS will afford to employers some relief in relation to their ongoing pension liabilities. Whilst the CJRS and TPR easements should go some way to assisting employers, employers need to be sufficiently informed to take full advantage of them.

The Author

Colin Greig, partner, DWF LLP

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