Pensions and the coronavirus job retention scheme

A summary of the CJRS and its effect on the calculation of pension contributions by Thomas Caughlan. Tom has spent over 15 years in technical roles. He has wide experience including the provision of technical support to financial advisers covering pensions and investment compliance. He currently specialises in pension planning.

Following the announcement in the 3rd March 2021 Budget, the Coronavirus Job Retention Scheme (CJRS) is now scheduled to close on 30th September 2021. When it does it will have been in place for well over a year and covered millions of jobs throughout the pandemic. We look at the impact of this Government scheme on pension contributions.

When it commenced in March 2020, the CJRS paid a grant to employers with furloughed staff covering three main costs of employment: salary, up to the lower of 80% of salary or £2,500 per month; employer pension contributions capped at the minimum automatic enrolment contribution levels; and employer national insurance (NI) contributions. This grant remained available at this level until 31st July 2020 but was then extended and amended as the pandemic continued.

In August 2020, the grant relating to salary did not change, but the grant covering employer pension contributions and employer NI contributions was removed. Then in September 2020, the grant relating to salary was reduced to 70%, capped at £2,187.50 per month. And in October 2020, the grant reduced again to 60% of salary, capped at £1,875 per month. Employees had to be paid at least 80% of their usual salary capped at £2,500 per month, which means in September and October 2020 their salary exceeded the grant available to employers, who were required to top up to the original CJRS level.

When the scheme was extended beyond 31st October 2020, the level of grant available returned to the August 2020 level, which meant 80% of salary up to £2,500 per month was covered with no grant for employer NICs and pension contributions. When the scheme was again extended to 30th April 2021, the level of grant available remained the same. It was then announced in the March 2021 Budget that the scheme is further extended to 30th September 2021. It was also confirmed that the grant will continue at 80% of salary to the end of June 2021 then reduce to cover 70% of salary for July 2021 and 60% of salary for August and September 2021. Fully furloughed employees will remain entitled to 80% of their normal salary capped at £2,500 throughout.

The scheme eligibility criteria have changed over time. It's currently possible to continue to furlough staff, to furlough staff for the first time, and to use flexible furlough for any staff. With flexible furlough, the grant is based on the employee's usual hours, but is pro-rated in line with the hours not worked.

Month Salary Employer NICs Employer pension contributions
March – July 2020 80% / £2,500 p.m. Grant available Grant available up to AE minimums
August 2020 80% / £2,500 p.m. No grant No grant
September 2020 70% / £2,187.50 p.m. No grant No grant
October 2020 60% / £1,875 p.m. No grant No grant
November 2020 - June 2021 80% / £2,500 p.m. No grant No grant
July 2021 70% / £2,187.50 p.m. No grant No grant
August - September 2021 60% / £1,875 p.m. No grant No grant

Employers can top up the salary of furloughed employees above 80% of their usual salary or £2,500 per month, but the majority would have suffered a reduction in pay. This has obvious impacts on pension contributions, which are usually calculated as a percentage of pay. Furthermore, the grant that was available to cover employer pension contributions was often lower than the amount the employer had to pay out.

A key aspect of the CJRS is that it would not have changed an employer’s usual pension payment obligations nor any of their payroll processes. Pension contributions continue to be calculated according to the scheme rules or other governing documentation. What is likely to have changed is the amount of the contribution, as the salary it is calculated with reference to changed.


RJS Ltd joins all staff up to its group personal pension unless they ask not to be joined up or later leave the scheme. The standard contribution basis is that the employee pays a personal contribution of 5% of basic salary (starting from the first £1 of earnings) which is matched with a 5% employer contribution.

Due to the current health crisis, RJS has retained a skeleton staff and furloughed everyone else. During the furlough period, it has calculated pension contributions in the usual way, deducted personal contributions from pay and forwarded them to the pension scheme or provider.

RJS has been, in accordance with its contractual obligations, able to reduce its employees’ salaries to 80% of their usual level (capped at £2,500 per month). The grant available under the CJRS has been altered a number of times, but from 1st November 2020 until 30th June 2021, the employer receives 80% of the employee’s original salary capped at £2,500. If its staff continue to be fully furloughed, RJS will receive 70% of the employee’s original salary capped at £2,187.50 for July 2021 and 60% of salary capped at £1,875 for August and September 2021. Since 31st July 2020, RJS has had to pay NI contributions and employer pension contributions without being able to claim a grant for these additional costs.

RJS remains contractually obliged to pay employer pension contributions to its furloughed employees.

Let’s look at an example for a specific employee.

Lex, an RJS employee, was employed on a salary of £48,000 per year prior to being furloughed in March 2020. She is paid for each calendar month on the last day of the month. After being furloughed, her salary is capped at £2,500 per month.

The amount RJS can claim in respect of Lex has varied over time. RJS It can claim a grant of £2,500 per month from November 2020 to June 2021. If Lex is still furloughed in July 2021, RJS will be able to claim £2,187.50 and if she’s still furloughed in August and September 2021, it will be able to claim £1,875 for each of these months.


In February 2020 (pre-furlough), her personal contribution would have been:

  • basic salary £48,000 / 12 = £4,000 per month
  • £4,000 x 5% = personal contribution of £200 gross per month
  • therefore, £200 x 80% = £160 (the net contribution) was deducted from her pay.

In February 2021 (post-furlough), her personal contribution was:

  • basic monthly salary = £2,500 per month
  • £2,500 x 5% = personal contribution of £125 gross per month
  • therefore, £125 x 80% = £100 (the net contribution) was deducted from her pay in the usual way.


In February 2020 (pre-furlough), her employer contribution would have been:

  • basic salary £48,000 / 12 = £4,000 per month
  • £4,000 x 5% = employer contribution of £200 per month was forwarded to the pension scheme.

In February 2021 (post-furlough), her employer contribution was:

  • monthly salary = £2,500 per month
  • £2,500 x 5% = employer contribution of £125 per month was forwarded to the pension scheme.

The employer contribution component of the CJRS grant was available up until 31st July 2020, but from 1st August 2020 onwards it can no longer be claimed.

In this example, the employer must fund the full employer pension contribution themselves from 1st August 2020 onwards, as their contractual obligation to pay a certain level of contribution has not changed and no grant can be claimed.


Under the CJRS:

  • The obligation to calculate and pay employee and employer contributions does not change.
  • Payroll processes do not change.
  • The amount of employee and employer contributions may change as they are often calculated on a reduced salary.
  • Employee contributions continue to be deducted from pay in the usual way.
  • The grant relating to employer contributions is not available from 1st August.

Salary sacrifice

The salary component of the CJRS grant must be paid in cash, which brings us on to what employers must do in relation to staff that had already agreed to salary sacrifice when they were furloughed.

For salary sacrifice to be effective, it has always been the case that it must result in a legally enforceable change to the contract of employment. It cannot be a notional change otherwise it will not generate any tax advantages. Consequently, the furlough pay will be calculated based on the salary after salary sacrifice and not before.

This means that a furloughed employee who is paid 80% of their salary after it has been reduced by salary sacrifice has effectively already suffered a salary reduction on their furlough pay. This must not be reduced further.

Salary sacrifice agreements often state that the pension contribution itself will be based on notional pay. The Government has confirmed that this approach can be used for a furloughed employee, which allows the employer to work out their notional salary from furlough pay.


Tim, also an RJS employee, is employed on a salary of £24,000 per year and had agreed to pay 5% contribution via salary sacrifice with a matched contribution from the employer. He was furloughed in March 2020.

His actual salary at the point he was furloughed was £22,800 (£24,000 – 5% x £24,000) or £1,900 per month.

His furlough pay, therefore, is £18,240 (£22,800 x 80%) or £1,520 per month.

Prior to being furloughed, the employer had agreed to pay employer contributions at 10% of salary (5% of which related to the salary sacrifice agreement). His original salary was £24,000 and so the total employer contribution was £2,400 or £200 per month.

The employer’s obligation to pay 10% doesn’t change (depending on the exact wording of the employment contract / salary sacrifice agreement). The notional salary, however, will now be lower than £24,000 as it is worked back from the furlough pay:

£18,240 / (100% – 5%) = £19,200

10% of £19,200 is £1,920, which is £160 per month.

Whilst continuing salary sacrifice agreements are unaffected by the CJRS, they can be brought to an end or suspended, either by agreement between the employee and employer or by exercising a lifestyle option within the agreement.

The employee and employer can agree to amend pensions salary sacrifice (e.g. reverting to the original position, so ending the agreement) at any time. However, it is unlikely that an employee will want to agree to this as the responsibility to pay contributions has been passed to the employer.

The Government has, however, confirmed that the current health crisis counts as a lifestyle option, which may – subject to the precise wording of the salary sacrifice agreement – allow the agreement to be terminated or suspended. It is important to note that this will not affect furlough pay as this is calculated based on the position at the point the employee was furloughed. And to reiterate the above point, employees should think carefully about withdrawing from a salary sacrifice agreement as the obligation to pay the pension contribution has passed to the employer.


Under the CJRS:

  • The obligation on the employer to pay contributions under salary sacrifice should not change.
  • The amount of the employer contribution may change as it is likely to be calculated with reference to a reduced salary.
  • The furlough pay will be calculated based on the post-salary sacrifice figure.
  • The salary sacrifice agreement may allow the pension contribution to be calculated based on a higher notional salary figure, which can be calculated using the furlough pay as a starting point.
  • No grant is available to cover the employer pension contribution.