Coronavirus and Auto-Enrolment
With the unprecedented changes to society and businesses imposed by the Coronavirus outbreak, all employers are being forced to look at how they can maintain stability and liquidity within their business in the short to medium term. 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 1.4 million UK businesses.
Coronavirus and Auto-Enrolment Employer Duties
The Pensions Regulator has issued updated guidance regarding the duties of all employers (whether or not any or all employees are furloughed or not) in relation to auto-enrolment.
In essence, the Regulator has confirmed that the employer’s automatic enrolment duties will continue to apply as normal, despite the ongoing challenges posed by the Coronavirus pandemic. This includes paying minimum pension contributions, as well as re-enrolment and declaration duties. However, the Pensions Regulator has made some slight changes to try to assist employers in the short term, these include:
- If you are due to re-enrol, you can move the anniversary of your staging date to a later date of up to three months.
- If you are having difficulty making your automatic enrolment contributions, either minimum or contractual, the Pensions Regulator is suggesting speaking to your pension provider, to explore whether there is flexibility to change payment dates, or plan contribution payments over a longer period.
- For those employers using a defined contribution scheme for automatic enrolment purposes (which will be the majority of UK employers), subject to the rules of the pension scheme and any contractual rights, and/or employment law requirements around consultations, you can decrease contributions to the statutory minimum. In certain circumstances it may be possible to dispense with the full 60 day consultation (see Coronavirus and Pension Consultations).
Ongoing contributions under the automatic enrolment regime is one area where the Pensions Regulator has been crystal clear: it is not allowing employers any leeway in relation to the Coronavirus crisis. If you are having difficulty with payments to your scheme and/or are facing re-enrolment whilst your employees are furloughed (this may include your payroll and/or HR team members), please contact our pension team members who can provide assistance as how to structure matters.
Auto-enrolment and the Coronavirus Job Retention Scheme
All employers due to take advantage of this scheme and furlough any of their workers, will still remain liable for the associated employer National Insurance contributions, and minimum automatic 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, but the government has now clarified in its guidance that in addition, an employer can also claim the associated employer National Insurance contributions and minimum automatic enrolment employer contributions from paying those wages. Pension contributions would still need to be deducted and paid to the appropriate pension provider.
Points to note – if an employer chooses to provide a top up salary in addition to the grant, employer National Insurance contributions and automatic enrolment contributions on any additional top up salary will not be funded by the Coronavirus 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).
Practical issues employers will need to consider around their auto-enrolment pensions and furloughed workers include:
- Employers who provide a scheme in which employer payments are over and above the statutory minimum level should check their employment contracts and any associated terms and conditions for employees as they may be liable for paying the additional amount over and above the 3% minimum
- 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. We are expecting revised guidance on pension consultations from the Pensions Regulator in the next few days
- Employers who use salary sacrifice or smart pension arrangements should consider the impact of the furlough provisions on those arrangements. Salary sacrifice and smart pension is a contractual variation of the usual employer/employee contribution balance which results in additional NI savings for both employer and employee, however the proposed government scheme may restrict any claim or compel employers to continue paying over and above the actual minimum even before furloughed employees. Again formal consultations may be required
- What is not clear in the guidance is how it would apply where employers have used one of the different agreed models under the auto-enrolment regulations for calculating the contribution, in particular where they have certified a particular method for deduction in calculation of contributions. Again, employers may need to give careful consideration as to the cost implications of adopting this route.
For more information on the Coronavirus Job Retention Scheme see our FAQs
Auto-enrolment contributions where an employer is unable to pay
The first point to note is there is no exemption for any UK employer currently in place, to not pay auto-enrolment contributions in respect of any workers (note that the definition is wider than just employees), so employers should not just cease contributions or, as may have happened in the last credit crunch, try and persuade employees to give up pension contributions in return for continued employment as this would amount to inducement under the regulations and could result in both fines and employees being able to take employers to the Employment Tribunal.
Instead, if an employer is struggling to keep its business viable and maintain pension contributions it should contact the Pensions Regulator and present its case. The Regulator has indicated it would try to look as flexibly as possible at the unprecedented circumstances which Coronavirus has presented, whilst its underlying expectation would be that all employers would continue to make payments there may be specific situations where this would not be possible.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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