Frequently asked questions

We’ve put together a list of your most frequently asked questions on the topic of employer contributions in relation to the Coronavirus Job Retention Scheme.

The Pensions Regulator (TPR) adopts a risk based approach to contribution monitoring so resource is focused on sectors or employers which it deems to represent the greatest level of risk to pension provision. The economic backdrop has changed significantly as a result of the global COVID-19 pandemic and we expect TPR to be adapting its approach to reflect current and future conditions.

Scottish Widows as a pension administrator normally has a duty to inform TPR when pension contributions have been in arrears for 90 days. TPR have relaxed that obligation in light of the current crisis and Scottish Widows will now only be required to notify TPR of arrears after a period of 150 days.

If you have any concerns relating to your firm’s ability to maintain pension contributions you should contact TPR.

Any employer who has concerns about their ability to make payments should contact TPR to discuss their situation and agree a way forward. If your scheme is with Scottish Widows you should also notify us of your discussion with TPR.

Any workers who are receiving no pay, or pay below the minimum that would trigger a pension payment, should be processed as a zero contribution on the relevant pay file and you should mark them as either on a ‘Premium Holiday’ or ‘Low Pensionable Pay’.

If all of your workers are not due to have a payment made for them, you should continue to upload a payroll file when it’s due but mark all as zero payment as above.

If you are in arrears, you should contact us to discuss how and when you are able to recover the position. The rules around making payments on time have not changed.

When you are catching up your payments, it’s important to submit payment lists in strict order and not to miss any out (I.e. if there was no pay – see above). Also, payment lists must be uploaded for each pay period. Do not amalgamate lists together to speed up the process of recovering the premium position. If you are in any doubt, please call us to discuss.

Whatever pensionable pay the employee has in the pay period.

If a scheme has contributions on a set 1, 2 or 3 basis and the employer wants to amend the contribution basis for some or all of the employees before the end of the current certification period:

  1. If the new basis is on a qualifying earnings basis, no new certificate is needed. The employer amends the expiry date for the existing certificate so that it ends on the day after the change takes place.
  2. If the new basis is on a different set 1, 2, or 3 basis, the employer issues a new certificate with a start date which matches the start date of the change. It amends the expiry date of the existing certificate so that it ends on the day after the date of the change takes place.
  3. If the change only applies to some employees, the new set 1, 2 or 3 certificates will have to identify which groups of employees it covers. That could be by name, job grade or other suitable category. This is in line with the existing rules that workforces can be segmented for pension contribution purposes.

For detailed guidance, see the DWP guide – the information about amending certificates early is in section 4.1. There’s guidance on segmentation in section 5.6.

Any questions about possible or actual changes to employment contracts should be referred to HR or employment law specialists.

Any employer considering increasing furlough pay for employees who give up the right to all or part of an employer contribution by ceasing active membership of a workplace pension or agreeing to end salary sacrifice should carefully consider The Pension Regulator’s safeguarding guidance. It’s not permitted to incentivise employees to opt out or cease active membership of automatic enrolment or other qualifying workplace pension schemes.

The process for calculating pension contributions doesn’t change. The employer and employee contributions will continue to be based on pensionable pay in the pay period. If the employer is claiming a grant to cover costs for a furloughed employee but tops their pay up to 100% out of their own funds then the employee’s pensionable pay, and therefore their pension contributions, are likely to remain unchanged.

Automatic enrolment (AE) legislation requires Statutory Sick Pay (SSP) to be treated as part of qualifying earnings, or as part of basic pay under set 1, 2 or 3 certification. These rules apply to both AE schemes and qualifying workplace pension schemes (QWPSs) using contractual enrolment. Employers will need to continue deducting contributions from the members’ salaries. SSP is part of the qualifying earning rules for AE.

To help in the immediate situation, the government is currently updating the rules to allow SSP to be paid earlier. More details are available here.

For contract based schemes, unless a contractual obligation exists within the employee’s contract of employment, the employer is not obliged to pay if the employee ceases payments, but can choose to maintain their payments.

For trust based schemes, the scheme rules should be checked to see whether the employer payments can also stop, but again can choose to maintain their payments.

Where an employer is in receipt of a Government allowance for furloughed workers, the amount will be based on the employee’s salary and then grossed up to compensate for Employer National Insurance and a minimum 3% employer contribution. There will be an expectation that the 3% employer contribution finds its way to the pension scheme, irrespective of what the employee chooses to do.

All payments made should continue to be determined by the pensionable pay in the respective pay period, if the pensionable pay reduces then we would expect the pension payment to reduce accordingly.

There is no provision within AE legislation which allows employers to offer to employees a premium holiday. To do so would be breaking the law.

To date we have seen no relaxation of that rule from Government or the Regulators. If employers need to discuss specific challenges which they or their workforce are facing in relation to the maintenance of contributions, employers would need to take the matter up with TPR.

Salary sacrifice payments made by the employer are a non-cash benefit under a contractual agreement with the employee and are not the employee’s pay. However, depending on specific contract wording employers are likely to be obliged to continue with the same level of salary sacrifice regardless of the employee’s pay reducing or even ceasing.

Employers will need to check the wording of the salary sacrifice in the employee’s contract to see what ability they have to amend/stop the salary sacrifice. It might be that the current salary sacrifice is limited to a 12 month period and they could amend at the end of that 12 month period.

This would be treated in line with any redundancy event.