COVID-19 – Contribution Payments and Changes
Subject to scheme documentation, the Pensions Regulator (TPR) has confirmed that employers can change the level of contributions payable to pension arrangements in certain circumstances. TPR has also reiterated the advice to employers who are experiencing difficulties in paying contributions to discuss this with their advisers and their provider to explore what options are available before stopping payments.
Under normal circumstances, employers seeking to reduce their contribution or increase the employees, other than in line with statutory requirements, would have to undergo a period of “consultation” with employees lasting a minimum of 60 days. This requirement is set out in:
- sections 259-261 of the Pensions Act 2004.
- the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006 (the main regulations).
- the Occupational Pension Schemes (Consultation by Employers) (Modification for Multi-employer Schemes) Regulations 2006.
Unless otherwise excluded, the duty to consult applies to an employer with at least 50 employees in Great Britain in relation to “listed changes” (ones which affect future pension arrangements) as defined in the main regulations. The full guide can be found by visiting the pensions regulator.
TPR issued an important update on the consultation process last week. Whilst the legislation has not changed, where an employer with more than 50 employees is proposing a reduction in their contribution or an increase in their employees, TPR has confirmed no action will be taken where a full 60-day consultation does not take place. This is provided the following is satisfied:
- The employer has furloughed staff for whom a claim is being made under the Coronavirus Job Retention Scheme.
- The proposal to reduce the employer contribution to the DC scheme is in respect of furloughed staff only. The existing rate continues to apply for non-furloughed staff.
- The reduced rate for furloughed staff only applies during the furlough period, after which it reverts to the current rate.
- Affected staff and their representatives have been written to, explaining the intended change and the effects on the scheme and the furloughed staff.
This easement will be maintained at least until 30 June 2020. As much consultation as possible should therefore be carried out. However, if changes are to be made permanent, or are to be applied to all staff, the full 60-day requirements will apply.
N.B.: To ensure employers meet their AE duties and workers remain automatically enrolled, total contributions must meet the AE minimum requirements.
TPR has confirmed that there are no changes to the AE regulations. Furloughed workers remain employees and are therefore subject to the AE requirements. This includes re-enrolment and declaration of compliance procedures, with failure to carry out re-enrolment and declaration process resulting in automatic fines.
- As furloughed workers remain on payroll, they should be assessed in the normal way and enrolled if eligible.
- There are no changes to the opt-out rules – furloughed workers are subject to the same timescales as before.
- Furloughed employees who are members of pension arrangements are subject to the rules of that arrangement and the pension contributions due.
- Furloughed workers may cease membership of a pension arrangement, and then opt-in later. Employers may send an opt-in communication in the future to remind such employees of their option when things return to normal.
- Furloughed workers who opted out of pension saving do not have to be re-enrolled at an employer’s Re-enrolment Date, where they meet the AE eligibility conditions provided they opted out in the 12 months before that Re-enrolment Date.
- When undertaking re-enrolment (or assessment), it is the actual amount paid to a worker in the pay reference period in which that re-enrolment (or assessment) is being made that is taken into account. This may be less than their normal remuneration.
Note: Under the Coronavirus Job Retention Scheme, if an employer makes a claim for a grant (to cover the lower of 80% of the furloughed worker’s salary or wage or £2,500 per month), the employer will also be able to claim the statutory minimum employer pension contribution on those wages. This is 3% of qualifying earnings, which are the wages in excess of £520 per month – for example if the claim is for £2,500, the claim for pension contributions will be £59.40 (0.03 x (2,500 – 520)).
Find out more
If you would like any more information on these matters, please contact your Ascot Lloyd consultant/contact directly.
Note: The content of this Pensions Briefing should not be deemed as advice. No section of this Pensions Briefing, reporting or data should be considered a client specific, or a personal client recommendation.
Advising on and arranging of occupational pension schemes is not regulated by the FCA. Arranging group personal pensions (GPP) and group stakeholder pensions (GSP) (which are not occupational pension schemes) may be deemed to be a regulated activity by the FCA once members start joining the scheme.