Impact of Salary Sacrifice pension contributions on furloughed employees

06 May 2020

I expect you have been inundated by emails related to Covid and the Coronavirus Job Retention schemes (CJRS), unfortunately a lot of them are full of jargon and not necessarily relevant to your circumstances. At Wingate we have been in regular contact with our clients and understand acutely as an employer ourselves, what is needed in plain English. With this in mind I will be publishing a series of useful blogs on the developing situation and the impact on employee benefits and pensions in particular.

HMRC have now launched The Coronavirus Job Retention Scheme (CJRS) and a number of you will have already made a claim but just to reiterate, you will need the following information for each furloughed employee:

  • National insurance number
  • Salary, NI and pension contribution information for you to calculate the claim amount

If you are implementing Furloughing via the government scheme the government will make the 3% minimum employer contributions required under automatic enrolment (AE), subject to the relevant caps although this may be lower than the employees’ contractual entitlement. Further information on the minimum contribution structure can be found via:

Therefore you may be required to top up employer pension contributions. Further information can be found via the link below and where to submit a claim:

The Pension Regulator has a dedicated section on their website regarding the implication for employers and pension schemes at:

Salary sacrifice/Smart pension contributions

I expect if you have a pro-active adviser or have recently set up your company pension scheme the default contribution method is likely to be via salary sacrifice on either an opt out or opt in basis often referred to as Smart pay.  The Pension Regulator and HM Treasury have recently updated their guidance regarding the interaction of salary sacrifice on pension contributions and Furloughed employee claims which is different to earlier guidance.

“You cannot include the following when calculating wages:

Non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay

Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.”

The Treasury has confirmed this means in all instances that where employers operated salary sacrifice in the pay period being used as ‘reference pay’ for CJRS, you will only be able to claim 80% of post sacrifice pay. For example:

  • Reference pay to 19.03.2020 £2,000
  • Pension contribution 5%
  • Post sacrifice pay £1,900

An employer can only claim £1,900 * 80% = £1,520 to cover wages and must pay this to the employee as a minimum wage and can’t deduct the employees 5% sacrifice contribution from the £1,520 received. Subject to the scheme rules and the employee’s contractual entitlement, you may be required to make the employees contribution upon their behalf. However if you top up the CJRS, the employee’s salary sacrifice deduction can be deducted from the top up amount.

Please note that for schemes of less than 50 lives, The Pension Regulator has removed the need to consult staff regarding any pension contribution changes as long as they are temporary and apply only during the lockdown period.

It should also be remembered that all pension contributions are a percentage of earnings so if pay reductions are implemented either due to furlough or implementing temporary pay cuts, the employee and employer pension contribution monetary amount deducted will also reduce. However employees are able to vary their contribution percentage if they wish, subject to statuary minimums and scheme rules, they could choose to take a payment holiday or leave the salary sacrifice scheme. Although it should be noted that leaving the salary sacrifice scheme would not impact the calculation of wages for the CJRS scheme.

If you are struggling to make employer pension payments, we would recommend you contact The Pensions Regulator directly on 0345 600 2475 who are available Monday to Friday – 9am to 5pm to discuss your situation.

I hope you have found this information useful and feel you would benefit from a more pro-active pension governance service from an independent financial adviser please get in touch with myself by mobile 07775692128 or email .

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