Government support for business throughout the COVID-19 crisis has been well documented but the implications of the virus on group pensions is unclear. We spoke with Adam Revell, Head of Employee Benefits at Alan Boswell Financial Planners, to find out answers to some of the more frequently asked questions.
I should imagine you’re getting lots of questions about group pensions in light of the Coronavirus. So, the first question really is around pension contributions and whether businesses should continue to make pension contributions in light of staff being furloughed?
“Yes, absolutely. The most recent guidance from the regulators is that, effectively, nothing’s changed. So if people have a workplace pension scheme pre-furlough or pre-coronavirus they should be maintaining that at whatever levels they were before this all happened.”
The government have announced that they are supporting business by paying up to 80% of staff salaries for those that have been furloughed up to a maximum of £2,500. Is there any business support from the government in terms of pension contributions? Can they claim any of the contributions back, for example?
“This is one of the main questions we’re getting. Businesses don’t realise that they can claim, in addition to the money from the government for salaries, pension contributions on top of that. How much they can claim is capped, based on what’s known as qualifying earnings. Qualifying earnings is pension speak for a band of earnings that are used to calculate contributions for auto-enrolment.
“For the 2020/21 tax year this is between £6,240 and £50,000 a year. So, in effect the first £6,240 of your salary is not included in any calculations and nor is anything above £50,000.”
Can we can we go through an example of what that may look like?
“So let’s say an employee is earning £30k a year, pre job-retention scheme an employer would pay a percentage contribution, usually 3%, on that whole salary. Effectively £900 every year. What they can do now is claim back the cost of the contributions between the qualifying earnings, which is £6,240 and the £30k. They can claim back the 3% contributions made on £23,760.”
And, obviously, only the period, set out by the Government for the business support?
“Yes, so that would be March, April and May at the moment. We’re waiting to hear if this gets extended to include June.”
Is it worth companies taking a pension contribution holiday?
“Well, they’re not allowed. The regulator says, like the earlier question, that contributions should be maintained as they were pre-job-retention scheme. So the virus hasn’t had an impact on those pension contributions at all. The only way an employer can stop making contributions is if an employee ceases because the contributions are tied in with the employee paying.
“The crux of this is the fact that because you can claim back some of the contributions there really is no reason to do anything else than to maintain them as they are.”
A similar sort of question really about employees who are off sick. Should you continue to make contributions in that case, in that instance?
“Yes, because employers are still being paid, even if it’s a statutory sick pay. So the answer to that is, yes, they should continue as normal, but based on the lower amount. Their monthly salary is reduced, therefore the contributions are less and again any money you can claim reduces as well.
“So if someone’s being furloughed, then the contributions will be based on their furlough pay. And if someone takes a temporary reduction in hours, for example, the contributions will be based on that reduced pay as well.”
If you have any questions on group pensions or your auto-enrolment obligations, whether related to COVID-19 or not, please call our Employee Benefits team on 01603 967967