Job Retention Scheme ("JRS")
An employer can claim a grant from HMRC of up to 80% of a furloughed employee's regular salary, with a cap of £2,500 per month. It has now been confirmed that in addition to this, the associated National Insurance contributions and minimum automatic enrolment employer pension contributions can also be claimed under JRS.
The guidance issued suggests that for these purposes minimum automatic pension contributions will equate to 3% of the employee's qualifying earnings for auto-enrolment purposes. As such, if the employer currently contributes more than this to their employees' pensions, anything in excess of that 3% would not fall within what can be claimed under the JRS. We also understand that if the employer tops up the salary in addition to the grant, the pensions contributions on the excess over the 80% capped level cannot be claimed.
Our Employment Team has prepared some helpful resources which unpack the Job Retention Scheme and what it means for employers and their furloughed employees. You can access this here >
Pensions Obligations During the Outbreak
Certain employers will understandably be seeking to make savings in light of the damaging impact COVID-19 is having on their business.
Ceasing the payment of required contributions (or significantly decreasing them) could render the employer non-compliant with their auto-enrolment obligation. In addition, the employer could be in breach of its obligations under the Scheme's Trust Deed and Rules or employer agreement with its employees and/or the pensions provider. If in its response to the COVID-19 outbreak the employer breaches payment obligations, it may face enforcement action by TPR/actions from members.
Defined Contribution Scheme Issues
TPR has wide powers to combat issues of non-compliance, such as the non-payment by employers of contributions required. Initially, where TPR becomes involved, it may provide notice to the employer of the actions they require to take to remedy their breach. However, should the employer then neglect to remedy this, further enforcement steps could be taken in the form of penalties. Fixed penalty notices, with flat rate penalties of £400 can be issued to employers. If TPR considers however that the breach is serious, or if it is persistent, it may impose an escalating penalty notice. This allows TPR to increase penalties ranging from £50 per day to £10,000 a day, depending on the size of the business.
Defined Benefit Scheme Issues
TPR have published guidance on the impact of COVID-19 on DB scheme trustees whose sponsoring employers are struggling in the current climate. TPR advises trustees to continue to keep in contact with the employer, to ensure they are up to date with their business continuity plans and how they are tackling the impact of the virus.
Many employers may request a deferral of deficit repair contribution payments. TPR have advised that trustees should be open to requests where it is established that there is a need for this, that all parties are playing their part and that there is a flexible ability to restart making DRCs when trading returns to normal. Should the trustees not be able to fully assess the employer's position, the period of deferral should not be more than three months. However if on the information available to them there is a strong business case for a longer extension, the period can exceed three months. With this reduction or suspension, trustees must ensure that dividends and other forms of shareholder return are also suspended, and this should be underpinned by legally binding commitments.
TPR have also provided guidance on the issue of investment. Trustees should be reviewing and managing their scheme's cash flow requirements, together with risks which may now exist within their portfolios. They should also review any future investment decisions that have been scheduled to take place in the future, determining whether these are still appropriate in the circumstances. With the possibility of trustees being absent due to illness, investment governance structures should be reviewed to ensure they can continue to function in the event of trustee incapacity. There may also be a need for changes to be made to the investment and risk management framework in light of the effect of COVID-19. TPR have also pointed out the heightened risk of scams and members being targeted by unscrupulous financial advisers which should be kept in mind by trustees.
For a closer look at the guidance you can follow the following links:
The Pensions Regulator - Guidance for DB scheme trustees whose sponsoring employers are in corporate distress
The Pensions Regulator - DB scheme funding and investment: COVID-19 guidance for trustees
TPR's Consideration of the Pandemic
Despite TPR's powers to ensure compliance throughout the outbreak, it recognises that these are unprecedented times, and that businesses will inevitably struggle as a result. They have provided assurance that they will take a "proportionate and risk-based approach towards enforcement decisions in light of these trying times". They aim to help employers and savers to get back on track.
Please contact us if you require advice from our Pensions Team on any pensions issues arising throughout the COVID-19 outbreak and beyond.