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COVID-19 and the pensions obligations of employers – Further TPR guidance

17 April 2020
The Pensions Regulator (TPR) has now provided welcome clarification on some of the key issues affecting employers and their pensions obligations in light of the COVID-19 outbreak.

Automatic enrolment 

Employers' automatic enrolment (AE) duties will apply as normal during the pandemic, whether their employees are still working or furloughed as part of the Coronavirus Job Retention Scheme (CJRS). 

New employers must continue to assess staff and put them into a pension scheme if they are eligible. However they can also postpone this duty to assess new or eligible staff for up to three months. 

This postponement cannot be used at re-enrolment. However, if an employer is struggling to comply with its re-enrolment duties on the recommended third anniversary of their staging date or duties date, a later date can be chosen. This date can be up to three months after the third anniversary date.

Coronavirus Job Retention Scheme

Under the CJRS, pensions contributions will still be made from a furloughed employee's wages and paid as normal. The current pensions scheme rules and contribution requirements will also still apply. 

For furloughed workers, employers may have chosen to pay more than the 80% of salary or more than £2500 per month covered by the CJRS, or the scheme rules may have a contribution rate that is higher than the 3% minimum requirement. TPR reminds employers that where they pay more than this statutory minimum on salary covered by the CJRS, the excess will not be refunded by the CJRS. 

Some employers calculate their pensions contributions on a different basis and do not use banded qualifying earnings. It is anticipated that these pensions contributions calculations will be carried out as normal. However, these employers will also require to calculate 3% of the qualifying earnings of a furloughed employee in order to make a claim under the CJRS. 

Decreasing Pension Contributions

In a defined contribution pension scheme, where the employer's contribution is more than the statutory minimum, it is possible that this could be reduced in the current circumstances. The contribution may be decreased to the statutory minimum. It must be ensured that it is not decreased below this level however. Legal advice may require to be sought where decreasing contributions is being considered, as there are several issues that need to be determined. For example, changes may need to be made to employment contracts, and any trade unions may need to be involved as a result. The rules of the scheme may not permit the reduction of contributions to the statutory minimum, so discussion should take place with the scheme trustees or provider if this is being considered. 

Prior to decreasing pension contributions, employees may require to be consulted, with a minimum consultation period of 60 days. TPR encourage as much consultation as possible. However, they have confirmed that under regulatory easement to endure until 30m June 2020, they will not take regulatory action where there is failure to comply with the 60 days in cases where all the below 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 reduction 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. 

Another way that pensions contributions could be reduced is where employees choose to either reduce their contribution level or to opt out of the scheme. This may be done, but an employer must not encourage or induce their employees to choose to opt out. Where an employee chooses to exercise one of these options, they still are required to be put back into the pension scheme at the next re-enrolment date (provided they meet the criteria for re-enrolment).

TPR have again noted that they know that this is a challenging time, and they recognise the strain this is putting on employers. In light of this they will take a proportionate and risk-based approach towards enforcement decisions, with the aim of supporting both employers and savers. 

If you require legal advice on any of the issues discussed above, please don't hesitate to get in touch with our Pensions Team.

Read our latest update on the Coronavirus Job Retention Scheme here >

Further Reading