Companies are warned that they could face fines if they reduce pension contributions, following the removal of government support for these payments.
From the start of August, companies with staff on furlough will no longer be able to reclaim pension contributions for these workers under the Job Retention Scheme.
As these changes come into effect pension companies have warned employers that the could fall foul of pension regulations if they do not make these payments in full, which includes higher contributions levels that might have been paid prior to the Covid-crisis.
Under the current terms of the Job Retention Scheme the government from August 1 will pay 80 per cent of wages up to a cap of £2,500 for the hours an employee is on furlough, but employers will now have to start paying their employer auto-enrolment contributions and National Insurance contributions (NICs) for furloughed employees.
Previously the government paid the auto-enrolment minimum of 3 per into these pension schemes. If employers had previously paid more than they had the option to top this up, though were not required to do so.
With this help ceasing, many companies may be looking to reduce higher payments down to this AE minimum but employers with more than 50 employees are required by The Pension Regulator to carry out a 60-day consultation if there are changes to pension contribution levels.
These rules were temporarily relaxed during the Covid pandemic, but only for furloughed workers and only until September 30th.
Aegon head of pensions Kate Smith,says “From August, employers can no longer reclaim their auto-enrolment 3 per cent pension contributions under the job retention scheme for furloughed workers.
“Pension contributions must be calculated based on the actual amount of pay received, whether this is furlough pay of 80 per cent of pay, capped at £2,500 a month, topped up pay, or time worked.
“Some employers, which previously paid higher pension contributions may have reduced these down to the auto-enrolment minimum for furloughed workers on a temporary basis.
“Normally employers with more than 50 employees have to carry out a 60 day consultation with their employees and representatives on changes to contributions. To give employers breathing space during the Covid-19 crisis, the Pension Regulator relaxed these rules, but only in respect of furloughed workers and only until 30 September.
“As ex-furloughed workers return to work, employers are reminded that they must reinstate their higher pension contributions for these workers. If employers intend to reduce their pension contributions down to the auto-enrolment minimum for longer, they must carry out a 60 day consultation. Under no circumstances should employers stop paying pension contributions, this is illegal and will attract fines.”