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Auto-enrolmentCoronavirusLatest NewsFurloughInformation & consultation

Pensions Regulator relaxes enforcement of contribution reduction rules

by Ashleigh Webber 16 Apr 2020
by Ashleigh Webber 16 Apr 2020 Shutterstock
Shutterstock

Employers’ obligations under the pensions automatic enrolment rules continue to apply, but the Pensions Regulator has made a number of concessions to help employers struggling with cash flow during the Covid-19 crisis.

Guidance published this month says the regulator will relax its requirement for a 60-day minimum consultation period for companies with at least 50 employees if those with a defined contribution (DC) pension scheme wished to reduce their contribution level, provided certain criteria are met.

We strongly recommend that any employer that is proposing to reduce its employer contribution rates in accordance with the relaxation fully documents the steps it has taken to ensure it has a full paper trail if the regulator subsequently starts to ask questions,” – Penny Cogher, Irwin Mitchell

It will not take enforcement action if staff have been furloughed; if the reduction only applied to furloughed staff; the reduction only applied during the furlough period; and if the affected staff had been written to. This relaxation applies until 30 June 2020.

Penny Cogher, pensions partner at law firm Irwin Mitchell, said: “A full 60-day consultation is still required if the employer wants to change employer contributions outside this relaxation of the pension consulting requirements.

“We strongly recommend that any employer that is proposing to reduce its employer contribution rates in accordance with the relaxation fully documents the steps it has taken to ensure it has a full paper trail if the regulator subsequently starts to ask questions.”

The guidance says: “We know this is a challenging time for everyone and we recognise the strain this is putting on employers.”

“We are working with HM Treasury and the Department for Work and Pensions to feed into the Coronavirus Job Retention Scheme’s central guidance on the pensions element of the grant.

“We will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of supporting both employers and savers.”

The guidance emphasises that employers’ usual automatic enrolment, re-enrolment and re-declaration duties continue to apply, even if staff have been furloughed. However, there are situations where organisations can postpone some of their responsibilities – for example, where an employer is struggling to complete its re-enrolment duties on the third anniversary of its staging date, it can choose a date up to three months after its anniversary to assess its staff.

Employers and staff are still obliged to make pension contributions in line with the rules of their pension scheme, but employees may choose to either reduce their contribution level or opt out of the scheme if they need to. Employers are not allowed to encourage or induce staff to make this decision, and the employee must be put back into the scheme at the next re-enrolment date.

The Pensions Regulator recognised that companies might have cash flow issues that make it difficult for them to maintain pension contributions, and encouraged them to talk to their pension provider to consider changing their payment date, or make use of the government support available, including the Coronavirus Job Retention Scheme.

It says: “We appreciate that this is a challenging time in terms of cash flow and resources. The government recently announced that the Coronavirus Job Retention Scheme would include the employer’s statutory minimum AE contribution. If you make a claim for a grant (to cover the lower of 80% of furloughed worker’s salary or wage or £2,500 per month), you will also be able to claim the statutory minimum employer pension contribution on those wages.”

The statutory minimum contribution is 8% of an employees’ wages – at least 3% from the employer and the rest made up by the employee.

Ashleigh Webber
Ashleigh Webber

Ashleigh is editor at OHW+ and part of the Personnel Today editorial team. Prior to joining Personnel Today in 2018, she covered the road transport sector for Commercial Motor and Motor Transport.

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