Many hundreds of employers have stopped making pension contributions after furloughing staff according to trustees.
Capital Cranfield professional trustee Andrew Cheseldine says some master trusts they work with have seen cancellations from “many hundreds of employers” in the wake of the Covid crisis.
Cheseldine says: “These firms may have furloughed 80 or 90 per cent of their employees.”
In some cases these firms may not realise they have further obligations, including the legal obligation to keep making pension contributions on behalf of thee staff. In other cases, he says, the money simply isn’t available until the government assistance payments come through at the end of the next month.
The government has said that firms that furlough staff will be able to claim an additional sum to cover the minimum pension payments due under automatic enrolment. But with some firms seeing revenues virtually disappear overnight this is creating short-term funding issues.
Cheseldine adds: “We want to try and establish and maintain communication with all these employers and where possible explore options for firms facing the more serious financial difficulties.”
He says it is important to re-iterate the message that its not ok to simply stop making these payments.
He warns that this will be an ongoing issue for trustees, and for regulators. “We need to make sure that as these government payments come through then this money is handed over to the pension firms. There is clearly the potential for fraud here.”
Other providers and advisers attending Corporate Advisers roundtable on the impact of Covid-19 on the workplace pensions market said this had not yet been a significant issue.
Royal London’s proposition strategy and insight manager Ronnie Morgan says: “We are seeing some clients stop contributions, but would ask firms in difficulty to contact providers as a first option. We may be able to offer other options for them.”
He adds that he hopes The Pensions Regulator will take a ‘pragmatic’ approach to firms who find themselves in difficulty and are late with payments.
“If it is a questions of businesses going to the wall by making these payments then you hope the regulator would take a pragmatic approach here and give some leeway on timing. But TPR has been clear that AE continues. We would urge affected firms to talk to us and the regulator.”
The TPR has issued new guidance today on how firms can meet AE obligations during this pandemic. This guidance reiterates that minimum AE payments must be made on time, but the TPR has also stressed that it is looking to support employers in difficulties and will take a “proportionate approach” to any enforcement decisions in light of the current financial pressure.
It urged employers to contact providers, and has extended the period in which schemes must report payment failures from 90 days to 150 days in to give trustees and providers more time to work with employers and bring payments up to date.
The People’s Pension director of policy and external affairs Gregg McClymont points out that most pensions work on a monthly cycle, so may not yet have a handle on the scale of any cancellations, either from employers, or members.
He says: “We expect there will be an impact but it still quite early to predict, and there are a number of variable, not least the effectiveness of the government assistance programme.”
He says at present there has been a big drop in call volumes from members but a “modest uptick” in calls and enquiries from employers.
“There was initially an uptick in calls from those concerned that they would not be able to afford to keep paying contributions. But seen in the overall number of employers this has been a relatively small proportion.”