08 Dec 2020
Since the first lockdown parts of the economy and businesses have been suffering hardship and unfortunately the recent lockdown has not helped. Who knows what is around the corner with the forthcoming regional tiered lockdown?
To date there has been some help from government with the initial furlough scheme covering some wages and employer pension costs. Unfortunately, each new version of the furlough scheme has been less generous. The current scheme which is available until 31.03.2021, only covers 80% of wages up to a cap of £2,500 per month and no contribution towards employer national insurance and pension contributions.
It is sometimes forgotten that an employer has a legal obligation to maintain employer pension contributions regardless of whether staff have been furloughed. Failure to fulfil this requirement may lead to legal action by The Pension Regulator (TPR). Unfortunately, The TPR’s quarterly compliance and enforcement bulletin has highlighted there has been an increase in unpaid contribution and compliance notices compared with last quarter. The quarterly bulletin shows a 191.4% increase in unpaid contribution notices from 352 to 1,026 and a 17% increase in compliance notices from 13,185 to 15,420 compared to the previous quarter.
If you are having problems making contributions, there are options available. The first of which should be to contact the regulator, TPR via 0345 600 1011 who may be willing to issue an easement notice to give you time to catch up on any missed contributions.
Also if you are contributing more than the minimum contributions or have self-certified via one of the three tiers a review by a qualified pension adviser such as Wingate BS may highlight the ability to reduce contributions to the statutory minimum which could significantly reduce the employer (ER)pension contributions.
There are a number of factors you should consider when deciding to decrease the ER contribution, including:
- your employment contracts with your staff and whether any changes need to be made, by agreement. You may wish to seek legal advice on the process.
- any agreements you have with recognised trade unions or other staff representative forums to discuss or notify of such changes.
- the rules or governing documentation of the pension scheme you use, whether these currently permit you to reduce your contributions to the statutory minimum or whether you will need a change to the scheme rules. If the pension scheme you use is a Group Personal Pension, you might be able to do this by changing the arrangements you have for paying contributions without the need for a new or amended contract. If you are unsure of your scheme provisions, you should speak to your scheme trustees or provider.
- who has the power under the rules to make changes if you have a trust-based scheme,this might be you or the trustees or a shared power. If the power is a trustee power or shared power, you will need to engage with the trustees of your scheme. Even if you have the power to amend the scheme rules, we would recommend that you notify the trustees beforehand.
- whether there are rules that apply under pensions legislation, even if employment law permits. For example, employers with at least 50 employees with a defined contribution pension scheme, are legally required to consult with members if they are making changes that decrease employer contributions.
There are other changes which could be considered such as delaying new joiners being added to the scheme and introducing salary sacrifice which could lead to considerable ER national insurance contribution savings and these savings could help pay towards the cost of ongoing ER pension contributions. Some legacy pension schemes set up at the start of auto enrolment can have monthly administration charges payable to the insurance company, a review of the scheme could result in the removal of this cost.
If you would like to discuss your options to maintain compliance with pension legislation whilst reducing the cost of running and contributing to the pension scheme, please get in touch.
