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Automatic enrolment and DC pension contributions: COVID-19 guidance for employers

We know this is a challenging time for everyone and we recognise the strain this is putting on employers.

We will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of supporting both employers and savers.

We are working with HM Treasury and the Department for Work and Pensions to feed into the Coronavirus Job Retention Scheme’s central guidance on the pensions element of the grant.

Published: 6 May 2020

Updated: 15 June 2020

This new guidance recognises that:

  • from 1 July 2020, staff on furlough under the Coronavirus Job Retention Scheme may work part of the time for their employer
  • for claims starting on or after 1 August 2020, employers will no longer be able to claim a grant for up to the statutory minimum automatic enrolment (AE) employer contribution

 

Automatic enrolment duties

Have my workplace pension duties changed?

Your automatic enrolment (AE) duties continue to apply as normal, including your re-enrolment and re-declaration duties and paying contributions. This is the case whether your staff are still working or are being furloughed as part of the Coronavirus Job Retention Scheme.

New employers

If you are a new employer, you should continue to assess your staff and put them into a pension if they are eligible. You can also use a process called postponement which postpones your duty to assess new or newly eligible staff (and therefore make pension contributions) for up to three months.

Re-enrolment

Many smaller employers are approaching or carrying out their first re-enrolment of staff. We will continue to write to you with information and support on how to carry out your re-enrolment duties and complete your re-declaration of compliance, recommending that you assess your staff for re-enrolment on the third anniversary of your staging date or duties start date.

You cannot use postponement at re-enrolment. However, if you are struggling to complete your re-enrolment duties on the third anniversary of your staging date or duties start date due to the coronavirus pandemic, you can choose a later date up to three months after your third anniversary to assess your staff. Use our re-enrolment date tool to see your available dates.

Government Business support packages

We know that these are challenging times. If your business is struggling with cashflow as a result of the coronavirus, the government has published information about the support available for employers such as:

  • the Coronavirus Job Retention Scheme for staff furloughed on or before 10 June 2020, if you are struggling with maintaining your current levels of staff
  • deferring VAT and Self-Assessment payments
  • a Statutory Sick Pay relief package for small and medium sized businesses
  • a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in Great Britain
  • small business grant funding of £10,000 for all businesses in receipt of small business rate relief or rural rate relief
  • grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
  • the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for small and medium sized business through the British Business Bank
  • a new lending facility from the Bank of England to help support liquidity among larger firms
  • the HMRC Time To Pay Scheme

Find out about the different support packages available on the Business Support website.

Make a claim for the Coronavirus Job Retention Scheme.

We want to help employers to keep going in these challenging times, so we will take a proportionate and risk-based approach towards enforcement against those who fail to meet their duties.

Maintaining pension contributions

Do I have to continue paying pension contributions?

The obligation for you and your members of staff to make contributions is set out in your pension scheme’s rules or other governing documentation.

Your staff may choose to either reduce their contribution level (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. However, you must not encourage or induce them to choose this option. If staff choose to reduce their contributions your scheme rules may allow you to reduce your employer contributions or retain them at the current rate.

Any member of staff who reduces their contribution below the statutory minimum, or opts out, or ceases active membership, must be put back into the pension scheme at the next re-enrolment date provided they:

  • Meet the criteria for re-enrolment.
  • reduced their contribution below the statutory minimum, opted out or ceased active membership more than 12 months before the re-enrolment date. If they have opted out or ceased active membership within the 12 months before the re-enrolment date you can choose to re-enrol them, but you don’t have to.

Any member of staff who reduces their contribution below the statutory minimum, or opts out, or ceases active membership, can also choose to opt back in to pension saving before the re-enrolment date if they wish.

Unless a member of your staff asks to opt out of their workplace pension or reduces their contributions, you and your staff members must continue to make the contributions required under the scheme at the correct time.

Any staff contributions you deduct from their wages must be paid to the scheme and not used for any other purposes.

If you’re struggling to make pension contributions

We appreciate that this is a challenging time in terms of cashflow and resources. The Coronavirus Job Retention Scheme means that employers with furloughed staff are able to claim a grant from government to include the employer pension contribution on the wages included in the Job Retention Scheme up to the level of the statutory minimum AE employer pension contribution for claims ending before 1 August 2020.

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. You could also consider using the government support packages, which are there to help with cashflow.

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme will close on 31 October 2020.

You will be able to claim a grant up to the lower of 80% of your furloughed worker’s salary or wage or £2,500 per month for claims ending before 1 September 2020, or the pro-rated equivalent if your member is also working for you part of the time after 1 July 2020. This reduces to the lower of 70% of the reference wage or £2,187.50 (pro-rated if your member of staff is also working for you part of the time after 1 July 2020) in September 2020 and the lower of 60% or £1,875 (pro-rated if your member of staff is also working for you part of the time after 1 July 2020) in October 2020. You can also claim up to the statutory minimum automatic enrolment employer pension contribution on wages included in the grant for claims ending before 1 August 2020.

For more information on the changes to the Coronavirus Job Retention Scheme, see the government's guidance.

The guidance below gives more detailed information about the pensions element of the Coronavirus Job Retention Scheme available for claims ending before 1 August 2020 and also guidance on an employer’s automatic enrolment duties for staff on furlough.

Payroll processes and pension contributions

This section provides guidance on what you need to know to calculate and pay your normal pension contribution due under your pension scheme rules. For information on how to calculate the grant from government in respect of up to the statutory minimum AE employer contribution on the furlough pay (for claims ending before 1 August 2020), see HMRC’s guidance on calculating the pensions element of the grant.

Even if you are making a claim under the Coronavirus Job Retention Scheme, your normal payroll process still runs as usual. If you have reduced your furloughed staff’s pay to the lower of 80% of their pay or £2,500 a month, you will run your payroll as normal on this amount of pay. If you have chosen to top up your furloughed staff’s pay, you will run payroll as normal using this amount of pay.

When paying your furloughed staff, deductions such as tax and national insurance contributions as well as pension contributions will continue to be made from your furloughed member of staff’s pay and paid as usual. You and your furloughed staff’s pension obligations remain unchanged, you will still upload the contribution schedules to your pension provider, and pay the staff and employer pension contributions over to the pension scheme calculated on the furlough pay.

Some employers calculate their pension contributions on a different basis and do not use banded qualifying earnings. This may be because they have chosen to certify under set 1, 2 or 3 and pension contributions are calculated from the first penny of earnings.

Where this is the case you will calculate and pay across your pension contribution as normal. However, you will also need to calculate 3% of the qualifying earnings of your furloughed staff as part of the process for making the claim for the total grant under the Coronavirus Job Retention Scheme. This is in addition to your existing pension contribution calculation in payroll not instead of it.

Working while on furlough – this applies from 1 July 2020

From 1 July 2020, staff on furlough will be able to work for you for part of the furlough period. You will need to have agreed how many hours your member of staff will work for you and the pay for these hours. HMRC provides detailed guidance, including examples of how to work out the furlough pay to be paid alongside. When working out the furlough pay the previously agreed furlough pay (ie the lower of 80% of their wages or £2,500 a month) will be adjusted proportionately.

In each pay period, you need to calculate the total pay (pay for hours worked plus adjusted furlough pay) and pay this through your normal payroll process using this total amount of pay. You should calculate staff and employer pension contributions as normal on this amount of pay. For example, if a member of staff earns £100 for hours worked and has adjusted furlough pay of £50 for the remainder, you will run payroll on £150 in the pay period as normal and calculate and pay the pension contributions due under your pension scheme rules on £150.

You will need to know the amount of furlough pay included in the total pay for the pay period as it is only on this amount that you may claim a grant for up to the statutory minimum employer pension contribution (for claims ending before 1 August 2020 only). In the example above, you will only be able to claim a grant of up to the statutory minimum AE employer contribution on £50 following the rules set out in HMRC’s guidance on calculating the pensions element of the grant.

Employer contribution to the Coronavirus Job Retention Scheme

For claims starting on or after 1 August 2020 you will not be able to claim for the employer pension contribution on furlough pay.

Under the rules of the Coronavirus Job Retention Scheme you must still continue to pay your member of staff at least the lower of 80% of their reference wage or salary or £2,500 (pro-rated if your member of staff is also working for you whilst on furlough) for September and October 2020. However, the grant you may claim from government reduces to the lower of 70% of the reference wage or £2,187.50 (pro-rated if your member of staff is also working for you while on furlough) from 1 September. And from 1 October it reduces to the lower of 60% of the reference wage or £1,875 (again pro-rated if your member of staff is also working for you while on furlough).

If you have reduced your furloughed staff’s pay to the lower of 80% of their pay or £2,500 a month and they are not working for you part-time during the furlough period, you will run your payroll as normal on this amount of pay in September and October. Pension contributions should be calculated and paid across on this amount of pay.

If you have chosen to top up your furloughed staff’s pay or your member of staff is working part-time during the furlough period, you will run payroll as normal using the total amount of pay.  

Employers paying more than the statutory minimum contribution

You might pay more than the statutory employer minimum AE contribution included in the grant under the Coronavirus Job Retention Scheme because:

  • you choose to pay your furloughed worker more than 80% of their salary or more than £2,500 a month
  • your worker is working for you part time during the furlough period (from 1 July 2020 only)
  • the furloughed worker is an active member of a defined benefit (DB) pension scheme or a DB member of a hybrid pension scheme
  • you choose to use certification for your defined contribution (DC) pension scheme (sometimes known as a ‘money purchase scheme’) and the scheme rules or governing documentation may require contributions from the first penny of earnings
  • under the scheme rules, your contribution rate is higher than 3%
  • under the scheme rules, you pay the total contribution and your member of staff does not pay any: this will be the case if you use salary sacrifice on pension contributions

If you are paying more than the AE statutory minimum contribution, the excess will not be funded by the Coronavirus Job Retention Scheme. You 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 yourself.

Reducing the employer contribution to the statutory minimum

If you use a DC pension scheme and your employer contribution under your scheme is more than the statutory minimum, you may be able to decrease it to the statutory minimum. However, you cannot legally reduce your contributions to below the statutory minimum.

There are a number of factors you should consider when deciding to decrease the employer contribution including:

  • Your employment contracts with your staff and whether any changes need to be made, by agreement. You may wish to seek legal advice on the process.
  • Any agreements you have with recognised trade unions or other staff representative forums to discuss or notify of such changes.
  • The rules or governing documentation of the pension scheme you use, whether these currently permit you to reduce your contributions to the statutory minimum or whether you will need a change to the scheme rules. If the pension scheme you use is a Group Personal Pension, you might be able to do this by changing the arrangements you have for paying contributions without the need for a new or amended contract. If you are unsure of your scheme provisions, you should speak to your scheme trustees or provider.
  • Who has the power under the rules to make changes if you have a trust-based scheme. This might be you or the trustees or a shared power. If the power is a trustee power or shared power, you will need to engage with the trustees of your scheme. Even if you have the power to amend the scheme rules, we would recommend that you notify the trustees beforehand.
  • Whether there are rules that apply under pensions legislation, even if employment law permits. For example, employers with at least 50 employees with a DC pension scheme, are legally required to consult with members if they are making changes that decrease employer contributions.

Employer consultation requirements

The requirement under pensions legislation to consult on certain changes only applies if you have at least 50 employees.

Before you decide to decrease the employer contribution you must carry out a consultation in accordance with a number of rules. These rules include that the minimum period of consultation must be 60 days.

However, if all of the following apply, we will not take regulatory action in respect of a failure to consult for the full 60 days:

  • You have furloughed staff for whom you are making a claim under the Coronavirus Job Retention Scheme.
  • You are proposing to reduce the employer contribution to your DC scheme in respect of furloughed staff only. For staff who have not been furloughed the existing pension contribution rate will continue to apply.
  • The reduced contribution rate for furloughed staff will only apply during the furlough period, after which time it will revert to the current rate.
  • You have written to your affected staff and their representatives to describe the intended change and the effects on the scheme and on your furloughed staff.

We would also encourage you to carry out as much consultation as you can. This regulatory easement will be maintained until 30 September 2020, but we will review this date as matters progress.

We expect you to comply with the full consultation requirements when deciding to decrease the employer contribution if all the above criteria have not been met.

Paying employer contributions less than the AE statutory minimum

In some case an employer’s pension contribution may be below the AE statutory minimum employer contribution. For example, the furloughed worker previously reduced their contribution to 2% and the employer chose to match it.

In these cases, the employer may only claim, under the Coronavirus Job Retention Scheme, the amount paid or due to be paid to the pension scheme under the pension scheme rules and not the higher amount of the statutory minimum AE contribution. This is because grants for pension contributions can only be claimed provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution. If an employer is only required to pay 2% to the pension scheme they cannot claim 3%.

Automatic enrolment duties for furloughed staff

As with your other staff, automatic enrolment duties for furloughed staff apply as normal, and you will assess them based on the amount of money you are paying them. This means that if you have agreed to reduce their pay, you will be assessing them based on the reduced amount.

Automatic enrolment

If a member of staff meets the criteria to be put into a pension scheme, you must enrol them whether they are furloughed or not. Or, you can also use postponement which postpones putting newly eligible staff into a pension scheme for up to three months.

If a member of staff triggers automatic enrolment during the furlough period, for example because they turn 22 and their earnings meet the criteria to be automatically enrolled and it is not at the end of postponement period, you can put them into your pension scheme or delay putting them into the pension scheme for up to three months by using postponement.

If a postponement period ends during the furlough period and your member of staff meets the criteria to be put into a pension scheme, you cannot use postponement again and must put them in.

The effect of reducing your furloughed member of staff’s pay may mean that they will never meet the criteria to be put into a pension scheme during the furlough period, even when working part of the time. When their pay increases after the furlough has ended, you must continue to assess them and enrol them if they are eligible. Your member of staff can ask you to put them back into a pension scheme before this.

Automatic re-enrolment

Your automatic enrolment and re-enrolment duties continue to apply as normal. If the third anniversary of your staging or duties start date falls during the furlough period, you can choose a date up to three months after your third anniversary to assess your staff. Use our re-enrolment date tool to see your available dates.

Your re-declaration deadline remains unaffected and will still be within five months of the third anniversary of your staging date or duties start date.

If the date to assess your staff for re-enrolment falls during the furlough period and any staff meet the criteria to be put back into a pension scheme, you must do this whether they are furloughed or not.

If you have agreed to reduce your furloughed staff’s pay, some of them may no longer meet the criteria to be put back into a pension scheme, even when working part of the time. You will next assess these staff for re-enrolment in three years, but they can ask you to put them back into a pension scheme before this time.

Requests to join a pension scheme

Any furloughed member of staff can ask you to put them into your pension scheme at any time including during the furlough period. If they do so in writing, you must put them into it within a month of receiving their request.

You will have to pay into the pension scheme if they are aged 16-74 and earn at least £520 a month or £120 per week.