Coronavirus – Pensions Factsheet

Scenario

Pensions implications

Sick or self-isolating employees on normal sick pay, whether statutory or contractual

If an employee is off sick with coronavirus or self-isolating and receiving sick pay, whether statutory or contractual, then the normal pension rules apply:

·       for public sector schemes and other defined benefit schemes, the employer pays full contributions so long as the employee continues to pay a contribution.

·       for money purchase schemes, both the employer and employee pay the agreed percentage of actual pay, even if this is lower than normal, unless the employment contract says otherwise. Sometimes the contract will already state that the employee should receive, or an employer will agree to pay, full employer contributions in any event.

Sick or self-isolating employees on full pay

For those employers who have promised full pay for employees who are self-isolating or actually sick with coronavirus, normal pension contributions will apply for both employer and employee.

Furloughed employees

The pensions position in relation to employees whose pay is covered by the Coronavirus Job Retention Scheme is not yet clear.  We are awaiting full formal guidance from the Government.

In particular, we are assuming that the employer has to pay the furloughed employees and then seek reimbursement, but it is possible that HMRC or another government body will pay employees directly.

Our initial views on this issue are below, but these are subject to change following further advice from the Government: 

The “reimbursement” approach

·       Employer pays 80% [or up to £2,500 a month]: If the employer pays the employees 80% of their wages directly and then claims reimbursement via the HMRC portal, then the employer should pay the relevant reduced proportion of pay as an employer contribution to the pension scheme, not the full contractual amount, as pay has effectively been cut.  This would also apply to public service pension arrangements too. The employee would pay the relevant proportion of their income as well.  This means that final pension benefits being built up would reduce.

·       Employer “tops up”: if the employer tops up the pay to 100% or any lower amount, then that would be pensionable in the normal way.

It may be possible to agree a reduction in both employer and employee contribution rates to reduce the impact on actual incomes over the period for private and third sector clients whose employees are not in a public sector scheme.  That will not apply for public sector pension schemes whose contributions are fixed by regulation.

In any case if an employee is a worker, then at the least minimum auto enrolment contributions should be made by the employer, if they qualified before any furlough period.

Government body pays employees directly

If HMRC or another central government body pays employees directly then arguably payments would not be pensionable at all.