With the unexpected changes to businesses imposed by the coronavirus outbreak, employers are being forced to look at how they can sustain stability and liquidity within their business. The Government has tried to help with this by announcing various schemes, one of which is the Coronavirus Job Retention Scheme.
However, as employers seek to deal with the challenges facing their business, they will all still have to deal with auto-enrolment as this is a statutory obligation imposed on all UK businesses.
Auto-enrolment duties apply as normal
Despite the ongoing challenges brought on by coronavirus, if any UK businesses continue to engage workers on a normal basis they will still be liable to maintain pension payments under the UK’s auto-enrolment regime. This means 3% deductions for employers, 5% deductions for employees and if any other means for constructing the payments are used, such as salary sacrifice, appropriate deductions and/or savings around National Insurance will continue as normal.
However, your employees may choose to either reduce their contribution level (but only to the statutory minimum and only of the if the scheme rules allow this) or opt out or cease active membership of the scheme if they decide that is right for them at this time. It is important to note, as an employer you must not encourage or induce them to choose this option.
What does the Coronavirus Job Retention Scheme mean for auto-enrolment contributions
Any employer furloughing their workers will still remain liable for the associated employer National Insurance contributions and minimum auto-enrolment employer pension contributions on behalf of their furloughed employees.
The furlough scheme will allow an employer to recover a grant from HMRC to cover the wages for a furloughed employee equal to the lower of 80% of an employee’s regular salary or £2,500 per month. The Government has also clarified in its guidance that in addition, an employer can also claim the associated employer National Insurance contributions and minimum auto-enrolment employer contributions from paying those wages. Pension contributions would still need to be deducted and paid to the appropriate pension provider.
Employer National Insurance contributions and automatic enrolment contributions on any additional ‘top up’ salary will not be covered by the scheme, nor will any automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (£512 per month until 5 April 2020 and £520.00 from 6 April 2020 onwards).
It is important to note that if employers are paying more than the automatic enrolment statutory minimum contribution (3%), the excess will not be funded by the Coronavirus Job Retention Scheme. Employers should continue to make the correct contributions due under the scheme and in this case will have to pay a proportion of the pension contribution cost.
If an employer wishes to limit its auto-enrolment contribution in line with the furloughing provisions, it will need to undertake a statutory pensions consultation and dependent upon the contractual position may need to undertake an employment consultation, however, this decision should not be made lightly and the implications of taking such actions should be considered thoroughly.
Where employees have been paying pension contributions under a salary sacrifice arrangement, HMRC has said that the amount of salary and pension contributions recovered under the Coronavirus Job Retention Scheme for furloughed employees should be based on the post-sacrifice salary. This means that if the employer stops making the enhanced employer pension contribution and only pays the auto-enrolment minimum for those on furlough, employees will receive less salary and only minimum pension contributions. In this scenario, it will be even more important for employers to make sure they have carefully explained, and consulted where possible, any pensions related changes.
For more information on the Coronavirus Job Retention Scheme see our blog here.
Businesses struggling to pay contributions
It’s recommended that you continue to pay pension contributions. If you think you may not be able to make your pension contributions, contact your provider in the first instance to explore whether there is flexibility to change the due date for payment of employer contributions to a future date or, whether they may be able to help you plan to pay contributions over a longer period.
What next?
The rules and best practice surrounding the Coronavirus Job Retention Scheme are evolving at a rapid rate and we anticipate further guidance from The Pensions Regulator in due course. If you would like to discuss how furloughing may affect your automatic enrolment duties, please contact Laura Bolton using the button below.
This information is correct as of 17 April 2020. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.
