Welcome news in an update for employers on 26 March that the Government’s coronavirus job retention scheme will cover minimum employer auto enrolment contributions for pensions in addition to the 80% of wages (capped at £2,500 per month). Whilst some points have been clarified, employers (and pension schemes) will need to consider and work through a number of aspects to ensure the pensions aspects of furlough run smoothly. DB accrual, salary sacrifice arrangement, and the interaction with pension scheme rules are amongst them.

In practical terms the link to minimum employer contributions may cause challenges for employers making claims who do not normally calculate pension contributions on the minimum income basis or percentage, although they can top-up actual pension contributions beyond the level covered by the Government scheme.

Elsewhere the guidance states that National Living Wage/ National Minimum Wage requirements do not apply during furlough, with the implication that pensions salary sacrifice can continue to operate even if it causes income to fall below these thresholds. The exception is that the thresholds must be met for any hours spent training whilst on furlough.

As usual, workers will be able to opt out of their pension arrangement, subject to existing legal restrictions on employer inducements to opt out. Workers usually have a right to opt back in to a qualifying auto enrolment scheme later, but the same scheme need not be offered for this purpose unless required under the pension scheme rules or the worker’s contract.

Further guidance on calculating employer claims is due to be provided before the scheme goes live, but points not covered and on which legal advice may be required (taking into account the specifics relevant to the particular situation) include:

  •  How the scheme will work for employees accruing defined benefit pensions and their employers, including any powers to modify benefit accrual during the period of furlough
  •  Whether salary sacrifice pension contributions must continue to be paid by the employer (and at what level), assuming they are excluded from the salary covered by the Government scheme; also whether salary sacrifice can be suspended during furlough (and if so, whether by employer and/or employee)
  •  Interaction with pension scheme rules, which will not include a furlough concept, and which may ordinarily provide for accrual on a basis different to the minimum mandatory employer contributions.