On 29 May Chancellor Rishi Sunak announced changes to the Coronavirus Job Retention Scheme (CJRS) effective from 1 July through to October when it ends. On 12 June HMRC produced further detailed guidance. So, what will the impact of those changes be on workplace pension schemes and how will employers need to adapt once employees return to work?
Eligibility and conditions
First, a recap of the eligibility conditions for the Coronavirus Job Retention Scheme (CJRS):
• Businesses must have been adversely affected by the Covid-19 lockdown
• Employees who are furloughed must have been registered for PAYE with that employer at or before 19 March 2020 and must have been on furlough on or before 10 June, unless returning from shielding, maternity or parental leave when they may be furloughed for the first time
• From July the total number furloughed cannot exceed the highest number in any three-week period ending on 30 June.
• From July the furlough period will be a minimum of one week. Employers may still rotate the employees on furlough to accommodate a phased return to work.
In the first phase of the scheme, a condition of receiving the furlough grant was that employees on furlough could not do any work for the employer. From July furloughed employees may return to work for their usual employer on a part time basis, to enable firms to phase in full time working while observing social distancing.
For July the CJRS grant will continue at 80% of wages up to a monthly cap of £2,500, employer NI contributions and employer statutory pension contributions (3% of pay between £520 and £2,500 per month). Thereafter it will reduce with employers asked to make up part of the payment. Payrolls will be grappling with a shifting pattern of pay and grant as the scheme evolves and the method of pension scheme contribution collection from the employee will also add complications. Pensions The furloughed pay is subject to income tax deducted via PAYE and employee national insurance. Employees who wish to benefit from the employer auto enrolment pension contribution must continue to pay their minimum 5% employee contribution.
Employees who seek to reduce this may do so but will have opted out of the auto
enrolment pension scheme and will no longer be automatically entitled to an employer
contribution. They may request to re-join later and must be permitted to do so within 12
months of opting out.
Partial return to work
From July, employees may work part time for the employer and will receive their full
contractual pay on a pro rata basis. Correspondingly the grant payable from the CJRS
can only cover the hours not worked.
Where salary sacrifice is used to pay pension contributions, the sacrificed amount may
be deducted from that part of pay for the hours worked. It cannot reduce either the CJRS
grant, which net of PAYE must be paid in full, nor leave the employee receiving less
than the National Minimum Wage or National Living Wage for the hours worked.
Where an employee’s gross pay (pay for hours worked plus grant) falls below £520 per
month they will no longer be eligible for auto enrolment in the scheme but may request
membership. It will be up to the employer whether they contribute to the scheme for that
Where the CJRS grant is below £520 per month no employer pension contributions will
be included in the grant. For lower paid employees who return part time, employers will
have to fund the employer pension contribution of 3% of the combined grant and pay
where this exceeds £520 per month.
Employers are free to top up wages of furloughed staff to full contractual pay and to
continue to provide pension contributions above the statutory minimum, where these are
part of the benefits offered. Where pension payments are to be reduced to the statutory
minimum, furloughed employees need not be consulted but they must be informed.
Contributions must return to the full contractual amount when furlough ends. Any
reduction in pension contributions to the statutory minimum for non-furloughed staff
would be subject to consultation of 60 days where 50 or more staff are affected, and the
employer would need to examine the contract of employment to assess whether and
how this might be achieved.
Salary sacrifice pension payments
Where pension schemes use the salary sacrifice funding method, which saves
employees and employers national insurance and provides income tax relief at the full
rate at source, the employer is obliged to pay all the pension savings as an employer
contribution. Contractual entitlement to pension contributions will be based on prefurlough
salary. However, the reference salary for the purpose of the CJRS grant is
based on post-sacrifice pay.
This will leave a shortfall between the employer pension contribution required and the
CJRS pension grant received. Employers cannot net this off the CJRS grant, all of which
must be passed to the employee after PAYE deductions for tax and national insurance.
Salary sacrifice pension contributions can be suspended but can only be reduced with
employee consent. Employers must avoid putting any pressure on employees to opt out
of statutory minimum pension provision as this could lead to censure and fines from The