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 have seen TPR adapting its approach to reflect these conditions.

Scottish Widows, as a pension administrator, has a duty to inform TPR when pension contributions have been in arrears for 90 days. After the outset of the pandemic, TPR temporarily relaxed that obligation, so that Scottish Widows was only required to notify TPR of arrears after a period of 150 days. However, normal reporting requirements resumed from 1st January 2021.

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.

See also TPR’s guidance for employer considering reducing contributions to the statutory minimums, which is available here.

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 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 automatic enrolment schemes and qualifying schemes using contractual enrolment. Employers will need to continue deducting contributions from the members’ salaries.

To help in the immediate situation, the Government has amended the rules for SSP linked to COVID-19.

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 the employer 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. Up to 31st July 2020, this amount was then grossed up to compensate for any employer National Insurance contributions actually incurred and the minimum 3% employer pension contribution based on qualifying earnings. If claimed, the 3% employer contribution had to be paid into the pension scheme, irrespective of what the employee chose 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 automatic enrolment legislation which allows employers to offer employees a contribution holiday. To do so would be breaking the law.

TPR confirms in its guidance to employers that this rule remains in force. If employers need to discuss specific challenges which they or their workforce are facing in relation to the maintenance of contributions, employers will 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.

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 agreement is limited to a 12 month period and they could amend it at the end of that period.

For more information and support see:
TPR guidance on furlough, pension contributions and salary sacrifice

This would be treated in line with any redundancy event.