Furlough and pension schemes

We recently hosted a detailed webinar addressing how existing pension schemes interact with the Coronavirus Job Retention Scheme (CJRS). Our Workplace Pension Experts walked through detailed calculations and answered questions about how the scheme operates alongside Automatic Enrolment, Contractual Joining and Salary Sacrifice schemes, and what options employers have for reducing their costs. This article explains some of the calculations from the webinar. You can replay the full webinar and hear our experts talk through the calculations.

Watch the webinar

What the CJRS covers

Under the CJRS, an employer can furlough employees and claim a Government grant covering the following employment related expenses:

  • 80% of normal salary up to a maximum of £2,500 per month – which must be paid in full to the furloughed employee
  • associated employer national insurance (NI) contributions – to the extent that NI is actually paid
  • employer pension contributions – up to 3% of qualifying earnings provided an employer contribution of at least this amount is actually paid. Qualifying earnings fall between £6,136 and £50,000 in 2019/20 and between £6,240 and £50,000 in 2020/21.

Employers are likely to have to check with their payroll software providers to ensure that the amounts they are entering for pensionable earnings are correct and in line with scheme rules and contractual commitments, including any salary sacrifice arrangements. Employers may need to run a second set of calculations on the qualifying earnings basis to work out their maximum claim under the CJRS.

Let’s consider a range of examples where an employee is furloughed from 21 March 2020 using simplified figures.

Example 1

Salary £15,000

Employer & employee pay 5% pension contributions

  • pensionable earnings = basic pay
  • employee contributions 5% gross from before tax pay to a trust based scheme
    employee contributions 4% net from after tax pay to a group personal pension (GPP) where the provider adds 1% basic rate tax relief

Example 1 table data



  • The employee receives a proportion of their normal pay for the 20 out of 31 calendar days in March before they are furloughed
  • The employer can claim the CJRS grant of 80% of normal earnings for the final 11/31 days in March
  • Having checked that it’s contractually entitled to reduce the employee’s earnings, it pays the employee just the CJRS grant for the 11 day furlough period.


  • The employer pays NI in respect of the employee’s total March earnings – that is, salary plus furlough pay
  • Under CJRS, the employer can only claim the 11/31 days proportion of employer NI relating to furlough pay.


  • The CJRS does not in itself alter the pension scheme rules or any associated contractual obligations relating to the employer’s pension contributions
  • As the employer hasn’t amended the scheme rules or its contractual obligations, both the employer and employee continue to pay contributions at 5% of pensionable pay. For March this is the total of salary plus furlough pay
  • As the employer has paid pension contributions, it can make a claim under the CJRS. But only for 3% of qualifying earnings and only in respect of furlough pay. In detail:
    • furlough pay amount = £354.84
    • deduct 11/31 of the lower earnings limit of £512 for March 2020 = £181.68
    • calculate 3% of £354.84 - £181.68 = £173.16
    • claim the maximum £5.19 under the CJRS against an actual employer contribution of £58.06.



  • The employee receives 80% of their normal salary and the employer can claim all of this back.


  • The employer pays NI in respect of the furlough pay and can claim back the full amount.


  • As no changes have been made to the pension scheme rules and furlough pay is basic pay, the employer and employee continue to pay 5% contributions
  • The employer can claim back 3% of qualifying earnings:
    • furlough pay amount = £1,000
    • deduct the lower earnings limit of £520 for April 2020
    • calculate 3% of the resulting amount
    • claim the maximum £14.40 against an actual employer contribution of £50.00.

Example 2

Salary £40,000

Employer & employee pay 5% pension contributions

This example assumes the same workplace pension arrangements as before, but illustrates the impact of the £2,500 cap on the furlough pay element of the CJRS.

Example 2 table data

Cap on furlough pay

  • The key difference here is that as 80% of £3,333.33 is more than the £2,500 CJRS cap for a full month, the grant for the furlough period is £2,500 x 11/31 for March and £2,500 for April
  • Otherwise, the calculations follow the same basic rules as in the £15,000 salary example.

Example 3

Before sacrifice salary £26,000

Employer & employee pay 5% pension contributions

Post-sacrifice salary £24,700

Employer pays 10% contributions based on pre-sacrifice salary

Salary sacrifice is often linked to workplace pension savings, as reducing pay and increasing the employer contribution results in NI savings for the employer and employee. The NI reductions can be retained or used to enhance pension contributions.

All salary sacrifice involves an amendment to the contact of employment agreed between the employer and employee. In this case:

  • the employee has agreed to reduce their salary by 5% from £26,000 to £24,700
  • the employer has agreed to continue to pay its normal 5% contributions and to pay a further 5% contributions – both based on the pre-sacrifice earnings of £26,000.

Example 3 table data

Furlough pay and salary sacrifice

  • The CJRS grant to cover furlough pay is based on the post-sacrifice salary actually paid to the employee before being furloughed
  • All of the CJRS grant must be passed on to the employee – the employer can’t reduce this amount even if salary sacrifice is in place.

Calculating pension contributions

  • The Pensions Regulator has issued guidance that actual furlough pay should be treated as the equivalent of post-sacrifice pay
  • Therefore, the employer has to back-calculate the equivalent amount of pre-sacrifice pay – after checking the terms of their specific salary sacrifice agreement
  • In this case, the employer determines that the agreement reduces pre-sacrifice pay by 5% and employer contributions are based on pre-sacrifice pay so:
    • actual furlough pay ÷ (100% - 5% sacrifice percentage) = pre sacrifice equivalent
    • £1,912.25 ÷ 95% = £2,012.89
    • employer contributions are 10% of this pre-sacrifice pay.
  • The employer can only claim back 3% of qualifying earnings based on the actual amount of furlough pay.

Further salary sacrifice examples

The Pensions Regulator gives further examples, including how to calculate pre-sacrifice earnings when the scheme uses the qualifying earnings basis.

However, each employer will have to check its own salary sacrifice agreements to determine what it is contractually committed to in terms of pension contributions.

Ending salary sacrifice early

Ending salary sacrifice after furloughing workers won’t increase the amount of furlough grant available under the CJRS.

Most salary sacrifice agreements include a break clause for ‘lifestyle events’. HMRC has confirmed that coronavirus is a lifestyle event. It also confirms that any amendments to salary sacrifice must be reflected in a changed contract of employment agreed with the affected employees. Of course, any later return to salary sacrifice will involve another change in the employment contracts.

HMRC’s ruling covers the tax and NI position. What an employer can actually do will depend on the wording of its own salary sacrifice agreements – which is a matter of employment and contract law. So some employers may need to seek specialist HR advice.

Amending pension contributions

The Pensions Regulator has indicated that it expects employers to do their best to maintain pension contributions in line with scheme rules. Employers facing difficulties should get in touch the regulator and their pension provider or scheme trustees.

Some employers will be considering reducing contributions for furloughed or other staff to the automatic enrolment minimums. They first need to check their scheme rules and any contractual commitments to their employees.

In addition, legislation requires employers with at least 50 employees to follow a formal 60 day consultation process before reducing employer pension contributions.

This legislation hasn’t changed, but The Pensions Regulator has confirmed that it temporarily won’t enforce the rules provided that:

  • the reduction will only apply to furloughed staff
  • during just the furlough period
  • and the employer is making a CJRS claim.

The employer must still explain the changes and the impact of them to their affected staff and their representatives in writing.

Importantly, there’s no relaxation of the consultation rules unless all the above conditions apply.

For more information see The Pensions Regulator website.

For employer use only.