When the government announced the Coronavirus Job Retention Scheme (CJRS), there was mention of some support for employer automatic enrolment pension contributions but no real detail.
It now appears the CJRS pension contribution support is based on a 3% employer contribution (the statutory minimum) of the furloughed salary based on qualifying earnings only and not basic salary or other pensionable earnings.
The definition of qualifying earnings is currently earnings between £520 and £4,167 per month.
Most of the workplace pensions we have put in place for our clients have been based on employee’s full earnings and not qualifying earnings. It has always been my view that capped and collared income is biased against the lowest and highest earners in any business and, thus, there is an inherent bias in this method.
By way of an example, let’s look at an employee earning £2,000 per month enrolled in a workplace pension scheme with a 5% employer contribution based on all of their salary.
Usually, the employer pension contribution would be £100, i.e. 5% of £2,000.
However, under the CJRS, the pension contribution is based on the furloughed salary, i.e. £1,600 (£2,000 x 80%).
Using qualifying earnings, this reduces to £1,080 (£1,600 - £520 = £1,080)
£1,080 x 3% = £32.40
Thus, the claim under the CJRS scheme will be £32.40 as opposed to £100.
It is up to employers whether they bridge the gap and those with more than fifty employees must go through a formal consultation process if they intend to reduce pension contributions.
Also, employee consent is required if there is an intention by an employer to vary employment terms and conditions.
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If you would like to discuss your company’s automatic enrolment contributions in light of the CJRS, give us a call today on 01483 205890.
Find out more
For more information on the details surrounding the reduction of contributions to furloughed employees’ workplace pensions, read this article from solicitors Stevens & Bolton.