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What happens to my pension when I’ve been furloughed?
You and your employer should continue contributions to your pension when you’re furloughed, based on the amount you’re being paid. Since August 2020, employers have no longer been able to claim back their minimum pension contributions from the government, and must continue to pay their contributions for your pension as part of their legal duties. Remember that if you’re on furlough and your employer isn’t topping up your salary, the total amount you earn will be lower. This means your pension contributions will be lower too.
As the government start to contribute less towards your pay from July 2021, your employer will be expected to make up the rest of your furlough pay to a minimum of 80% of your normal wage. The furlough scheme ends 30 September 2021.
Employee contributions cannot be claimed back from the government under the Coronavirus Job Retention Scheme (CJRS), so you should continue to pay as per the legal minimums, or whatever is set out in your contract.
What contributions do employers need to pay?
Employers should continue contributions at the regular agreed rate.
If your employer uses qualifying earnings to work out pension contributions, and your earnings fall below £520 per month, contributions may not be due.
If your employer is using salary sacrifice, the rules are a bit different as contributions should continue at the rate agreed with your employer. Check with your payroll department how it might work for you.
From July, employers could bring furloughed employees back to work on a part-time basis.
You and your employer should continue to pay contributions at the regular agreed rate.
Your contributions are based on what you are paid (regardless of hours worked).
The government changed the way the CJRS works for employers, but this won’t affect your pension contributions. Your pension contributions should continue at their normal rate.
September and October 2020
The amount the government pays towards your wages reduced in September and October.
The CJRS has been extended. The government pays 80% of your wages up to a cap of £2,500 for hours not worked if you’re on furlough, as it did before September.
The extended CJRS doesn’t cover your or your employer’s pension contributions, so you need to continue at the normal rate.
The CJRS has been extended until 30 September 2021.
In July, the amount the government pays towards your wages starts to reduce and your employer is expected to pay the rest of the 80% you’ve been receiving up until this point.
The government pays 70% of your wages, up to £2,187.50 and your employer pay 10% of your wages, up to £312.50
The amount the government pays towards your wages reduces again in August.
Your employer is expected to make up the difference.
The government pays 60% of your wages, up to £1,875 and your employer pays 20% of your wages, up to £625.
The CJRS ends on 30 September 2021.
What will happen to my pension if my employer goes out of business?
Your pension is your money, invested in your name. If your employer goes out of business, you’ll no longer receive contributions from them going forward but your pension pot is held separately and won’t be available to your employer’s creditors.
If your employer does go out of business and pension contributions are outstanding, this can impact your ability to claim a small pot lump sum until those contributions have been paid. An Insolvency Practitioner will be responsible for gathering all the information on pension payments that your employer should’ve made before the insolvency date. This process can take a considerable time to complete.
If I’m made redundant, do I have to pay pension contributions based on my redundancy pay?
The tax-free redundancy payment (up to £30,000), ie the lump sum you’d get for being made redundant, isn’t counted as pensionable earnings and therefore isn’t subject to pension deductions. What you receive in your final period of employment which is your normal taxable pay will be subject to the same auto enrolment deductions.
Need more help?
More information about how coronavirus might affect your pension can be found on gov.uk.
How might coronavirus affect my pension?
You may have seen news reports about how the coronavirus outbreak has caused uncertainty in world stock markets, including those in the UK.
While short-term drops in the value of your pension savings can be worrying, in the long term, the value can go up as well as down. So it’s important to look at the bigger picture.
For younger savers who need investment growth, there’s plenty of time for the markets to right themselves.
And for members who are approaching retirement sooner and are in one of our investment profiles rather than self-selecting, we take steps to protect their pension savings from unnecessary risks as they get closer to retirement. Please note that a glidepath doesn’t guarantee the value of your pension pot – the value of investments can go down as well as up.
This can be a very worrying time but hasty decisions could have a big impact on your future.
You can normally start taking money out of your pension pot from the age of 55 if you want to (the government proposes to increase this to age 57 from 2028).
But remember you’ll receive only the current value of your pension pot. So, if you access your pension savings now, you might miss out on any increases in value in the future if markets recover.
It’s a good idea to focus on your needs in the long term rather than on current events, and to take advice before making decisions.
If you’re experiencing financial difficulties, it’s worth exploring any other savings you might have before taking your pension savings and looking at what other sources of support are in place. More information can be found on the MoneyHelper website. MoneyHelper also has a debt advice locator tool to help you find out where you can go to get free debt advice.
The Financial Conduct Authority (FCA) has also put together some helpful information on their website. It explains why you should stay calm and not rush into any financial decisions – and how to avoid pension scams. We recommend you read this before making any decisions about your pension savings.
When the scheme comes to and end, you’ll need to decide to either:
bring your employees back to work on their normal hours
reduce your employees’ hours
terminate their employment (normal redundancy rules apply to fuloughed employees).
If you decide to choose the third option, your employees’ pension pots will remain invested with us until they decide to take their money from the age of 55 (proposed to increase to 57 from 2028) or transfer their savings to another pension provider.
The following FAQs will continue to apply until CJRS ends on 30 September…
How do pension contributions work under the CJRS?
If you’re using the CJRS, you should continue to run your payroll as normal and continue contributing to your employees’ pensions at the regular agreed amount. From 1 August 2020, employers can no longer claim minimum employer pension contributions under the CJRS so must pay these themselves at the agreed amount (subject to the legal minimum contribution rates).
Until 1 August 2020, these grants covered employer pension contributions up to the statutory minimum employer pension contribution.
However, the scheme changed in August and employer pension contributions can no longer be claimed through the CJRS.
Did the CJRS grants cover pension contributions above the minimum level?
No, the CJRS did not cover any pension contributions you made above the minimum employer contribution of 3%. In the interests of simplicity, the government has aligned the grants with the 3% minimum contribution required by employers. If you contributed above this amount and continued to do so for furloughed staff, you wouldn’t have been able to claim for these additional contributions.
Can our agent deal with this/claim CJRS on our behalf?
If you use an
agent who is authorised to act for you for PAYE purposes, they’ll be able to
make a claim on your behalf.
However, if you
use a file only agent (who files your RTI
return but doesn’t act for you on any other matters) they won’t be authorised
to make a claim for you – so you’ll need to make the claim yourself.
Your file only agent can assist you in obtaining the information you need
Is the government going to take further action by suspending auto-enrolment or stopping pension contributions?
Not at the moment. The government has decided wage subsidies are the best way to support you and your employees, without negatively impacting on your employees’ financial future. However, they have said they’ll keep the situation under review, and we’ll update the information here if things change.
Employees should continue to make their pension contributions. However, they do have the option to opt out or cease saving if they wish.
If you receive requests from your employees about this, you can find some useful information in the ‘Stopping or reducing pension contributions’ section below.
What happens as furloughed staff return to work part-time?
You and your employees should continue to pay contributions.
What is the government doing to ensure employers continue to comply with their workplace pension duties?
TPR sets out its expectations of employers in its guidance. They expect all employers to continue contributing in full and on time. Plus, they’ll be tracking the reporting of, and maintaining data on, individual employers.
However, they’ve confirmed they will, where possible, take a proportionate and risk-based approach towards compliance and enforcement decisions, with the aim of supporting you and your employees.
Can we stop pension contributions for a set period?
Currently, TPR has informed us that employers must continue to meet their auto-enrolment duties. Under current scheme rules and legislation, there’s no ability to take a holiday from paying pension contributions.
However, TPR has acknowledged this is a challenging time for employers and has been clear that its aim is to help employers get back on track and help both employers and savers.
Is there currently any flexibility with the percentage of contributions we submit?
Currently there has been no change to legislation, so the current statutory minimums remain the same. If you’re currently paying employees above the minimum, you may be able to reduce this, but contributions must remain above the minimum levels. You can find out what those levels are on our minimum contribution webpage.
Some employees may decide that they wish to stay in the scheme but lower their contribution rate below the minimums. We can help you set this up, but you can’t impose this on your employees as that would be breaking the regulations.
If an employee decides they can’t afford any contributions, they will need to opt out; either online, by phone or by form directly with The People’s Pension. You can’t influence your employees on this decision as that would be a breach of the regulations.
We pay more than the statutory minimum contributions, can we reduce this?
If you use a defined contribution (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.
Please note that employers with at least 50 employees with a DC pension scheme, are legally required to consult with members if they’re making changes that decrease employer contributions.
If you use salary sacrifice/exchange and you’re claiming wage costs through the CJRS, you may need to amend your payroll processes to calculate the pension contribution to be paid to the pension scheme in order to ensure you still meet your legal obligations.
We recommend you read the guidance for employers that TPR has published on their website.
What should we do about pension contributions if we’re temporarily closing and employees won’t be paid during this time?
We don’t currently report companies to TPR unless they’re 150 days in arrears (though this will be reverting back to 90 days from January 2021). So, if all contributions are currently up to date and you plan to open your office within 150 days, we can move your pay reference period to the time that you expect your employees to return to work. You will receive reminders to submit contributions at this time, however these are automated letters.
If you’re unsure as to when you’ll be opening again, best practice would be to ensure contributions are up to date and paid. You’ll then need to mark your employees as scheme leavers and re-add them to the scheme once they return to work.
The Kickstart government scheme offers financial support – including pension costs – for employers who provide work placements for young people.
Eligible employers can apply for grants through the scheme to cover the National Minimum Wage for 25 hours a week for eligible 16-24-year-olds, as well as the associated National Insurance contributions and employer minimum pension contributions.
For policy specific information, many of your questions can be answered if your client accesses their account online. For example, members will be able to find information on things like:
Selected retirement age
Transactions and contributions
It’s quick and easy to get set up – your client simply needs to visit our Manage account page to get started. Members will need their customer number and National Insurance number handy. Please note only your client is able to access and set up their own account.
Share our video with your member clients to help them set up their Online Account…
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Other common enquiries
Managing your pension account online
Common questions about getting into your Online Account:
Our re-enrolment webpage answers all the common questions on re-enrolment and explains what you need to do for re-enrolment as an employer.
I’m an adviser
See content specific to advisers.
Supporting your clients during the coronavirus outbreak
We’re providing information to help answer our members’ and employers’ common questions during the coronavirus outbreak – which you may also find useful to help you support your clients at this difficult time.
You can also find information to help you support your clients with other non-coronavirus-related enquiries, such as consolidating legacy schemes or re-enrolment, through our Support for advisers webpage.
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