Firms are breaking employment law by imposing salary cuts and pension reductions without undertaking a required 60-day consultation period with employee representative groups.
Advisers attending a virtual Corporate Adviser roundtable on the Covid crisis have highlighted this issue, pointing out that some firms were trying to reduce pension payments to minimum AE levels to ease financial difficulties.
Punter Southall Aspire managing director Alan Morahan says: “There has been a lot of focus on firms who furlough staff maintaining minimum AE payments.
“But lots of businesses pay more than these minimums and may be looking to reduce these payments over the short-term.”
As he points out that would breach employment law, if this changes employees contractual terms. Usually any such change requires a 60-day consultation period with employees and/or unions.
He says: “In the current crisis this timeframe may not seem practical. But we are advising firms to get legal advice before making any change.” Where possible he says firms should be looking to get agreement regarding the changes from unions or employees even if this can be done on a shorter timescale.
Premier Benefit Solutions head of employer services Sue Pemberton says they are advising many clients that it isn’t straightforward to simply cut pension contributions to the legal AE minimum. “They need to seek advice from their employment lawyer and liaise regularly with employees. A 60-day consultation may not be possible but they should aim to reach some agreement, as this could be challenged at a later date.”
Morahan says that some firms are simply trying to deal with immediate financial issues, and are taking they view that they will face the consequences of this actions at a later date. For some companies this is a case of survival, he says.
Royal London proposition strategy and insight manager Ronnie Morgan says guidance from the regulator may be helpful for firms in this situation. “Their guidance is ‘to do their best in the circumstances’, which would indicate some pragmatism will be applied for firms that are unable to meet these specific requirements on 60-day consultation periods.”
First Actuarial DC consultant Neil Kempshall says across the industry there is a huge variance depending on the sectors employers operate in. “For some clients we deal with it is a case of survival, others are looking to get back to business as normal as soon as possible.
“There are many firms though that would benefit from a three to six month cushion, so even those that can maintain pension spending are putting other initiatives on ice, for example financial education. They want to be in a position to do this properly.”