On 15 June 2020, The Pensions Regulator (TPR) issued updated guidance for Defined Contribution (DC) scheme compliance during the COVID-19 pandemic. This is in recognition of the fact that the Coronavirus Job Retention Scheme (CJRS) is changing:
- To allow flexible furloughing from 01 July 2020 and
- Tapering employer funding from 01 August 2020, specifically the abolition of the pension grant
This is important information in three main areas for employers:
Auto-Enrolment / Workplace Pensions
Essentially, this section is relaying the previous message that the CJRS has not changed an employer’s workplace pensions / auto-enrolment duties. These are the duties for:
- Maintaining the deduction of and payment of contributions
- Re-enrolment and re-declaration
Maintaining Pension Contributions
This section is, perhaps, going to be increasingly relevant as the level of UK Government employer support reduces from August 2020. It is split into two distinct parts:
Do I have to continue paying pension contributions?
Simply, the pension scheme rules dictate the level of contributions that are payable. Although, if the scheme rules allow, workers may choose to ‘opt-down’, i.e. pay contributions at a rate that is below the statutory minimum. Alternatively, they may opt-out or cease membership altogether.
Importantly, the employer must not ‘induce’ or encourage opt-downs, opt-outs or cessations. TPR’s guidance ‘Safeguarding individuals’ is a good read, giving examples of the types of inducements that are prohibited in legislation, which is enforced.
Another consideration for opt-downs, opt-outs and cessations is the requirement for the worker to be flagged for re-enrolment.
If you’re struggling to make pension contributions
This talks about how employers may suffer cash flow problems and be unable to pay over the pension contributions. This should not be an issue with regards worker contributions, as the money is never the employer’s in the first place.
The message is to talk to the pension provider in the first instance about any flexibility that they may offer to change the due date of payment.
The Coronavirus Job Retention Scheme
This is a lengthy section and for employers and pension scheme administrators this is absolutely worth reading. It starts by saying that the Coronavirus Job Retention Scheme (CJRS) will close on 31 October 2020, though the pensions grant element of the scheme closes 31 July 2020. It has a number of sub-headings and I have given a flavour of the contents by saying ‘essentially’ after each one:
- ‘Payroll processes and pension contributions’ – essentially, it’s contributions as normal
- ‘Working while on furlough – this applies from 1 July 2020’ – essentially, it’s contributions as normal, though the value of pay subject to pension contributions may be different given the introduction of flexible furloughing, if the employer decides that this is right for the business
- ‘Employer contribution to the Coronavirus Job Retention Scheme’ – essentially, a rundown of the changes from August 2020 until the scheme closes on 31 October 2020
- ‘Employers paying more than the statutory minimum contribution’ – essentially, this is saying that the CJRS will not refund in excess of statutory minimum auto-enrolment pension scheme contributions, regardless of the scheme operated (and it will not refund anything from 01 August onwards)
- ‘Reducing the employer contribution to the statutory minimum’ – essentially saying that it may be possible to decrease employer contributions down to the statutory minimum, however, they cannot go below that
- ‘Employer consultation requirements’ – essentially, any changes to the scheme require consultation if there are at least 50 workers and the consultation period is 60 days. HOWEVER, TPR will not take regulatory action for failing to consult for 60 days if this is furlough-related. This ‘easement’ lasts until 30 September 2020
- ‘Paying employer contributions less than the AE statutory minimum’ – essentially, if the employer contribution is below the statutory minimum, say 2%, they cannot claim a pension grant for the 3%
- ‘Automatic enrolment duties for furloughed staff’ – essentially, this is saying that the duty to deduct contributions on the amount paid remains, even if the amount paid has been reduced as a result of a reduced salary
Employers, pension scheme administrators and providers of Defined Contribution (DC) schemes should read this guidance.
For Defined Benefit (DB) schemes, there is also the guidance ‘DB scheme funding: COVID-19 guidance for employers’ published on 16 June 2020.