Covid 19 – Regulator guidance on employer compliance with automatic enrolment duties

14th April 2020

On 9 April 2020 the Pensions Regulator published the latest of its Covid-19 guidance for employers.  This guidance focuses on employers’ automatic enrolment duties.  The guidance, amongst other things, provides helpful clarification on how an employer’s automatic enrolment duties fit with the Government’s coronavirus job retention scheme (Job Retention Scheme) as well as the extent to which an employer must comply with the pensions consultation requirements where it wishes to reduce employer pension contributions.

Automatic enrolment duties

The Regulator is clear that an employer’s (including new employer’s) automatic enrolment duties continue to apply as normal during the Covid-19 pandemic. The Regulator comments that this is the case regardless of whether or not an employer has employees who have been furloughed as part of the Government’s Job Retention Scheme.

Automatic enrolment and the Job Retention Scheme

The Regulator acknowledges that employers have had questions about how the pensions aspects of the Job Retention Scheme operate.  The Regulator’s guidance provides the following clarifications.

Payroll processes and pension contributions

Where an employer makes a claim under the Job Retention Scheme, its payroll continues to run as normal. The Regulator is clear that the employer’s and the furloughed employee’s pension obligations remain unchanged: the Job Retention Scheme does not require an employer to make any changes to its existing pension arrangements or payroll processes. The current scheme rules and contribution requirements will continue to apply therefore.  However, the employer will also need to calculate 3% of the qualifying earnings of its furloughed employees as part of the process for making the claim under the Job Retention Scheme. This is in addition to the employer’s existing pension contribution calculation in payroll not instead of it.

Employers paying more than the statutory automatic enrolment minimum contribution

An employer may be required to pay more than the statutory minimum automatic enrolment contribution included in the grant under the Job Retention Scheme.  This may be for a number of reasons including:

• the employer chooses to pay furloughed employees more than 80% of their salary or more than £2,500 a month,
• the furloughed employee is an active member of a defined benefit (DB) pension scheme or a DB member of a hybrid pension scheme,
• under the scheme rules, the employer contribution rate is higher than 3%, or
• under the scheme rules, the employer pays the total contribution and the employee does not pay any as a result of a salary sacrifice scheme.

The Regulator’s guidance is clear that where an employer pays more than the statutory minimum contributions for whatever reason, the excess will not be funded by the Job Retention Scheme. The employer should continue to make the correct contributions due under the scheme and the amount in addition to that recoverable from the Job Retention Scheme must be met by the employer.

For information concerning defined benefit scheme funding please see our earlier Insight dated 30 March 2020.

Reducing the employer contribution to the statutory automatic enrolment minimum

The Regulator’s guidance states that where an employer contributes to a defined contribution scheme it may be able to reduce its contributions to the statutory minimum. However, the Regulator is clear that an employer cannot legally reduce its contributions below the statutory minimum.

Usually where an employer with at least 50 employees wishes to reduce employer contributions to a defined contribution pension scheme, it would need to complete a 60 day consultation with affected employees before the reduction in contributions would be effective.  However, the Regulator’s guidance states that although it encourages employers to undertake as much consultation as possible it will not take regulatory action in relation to a failure to consult for a full 60 days where all the following conditions apply:

• the employer has furloughed employees for whom it is making a claim under the Job Retention Scheme
• the employer is proposing to reduce the employer contribution in respect of furloughed employees only
• the reduced contribution rate for furloughed employees will only apply during the furlough period, after which time it will revert to the current rate
• the employer has written to affected employees and their representatives to describe the intended change and the effects on the scheme and on the furloughed staff.

The guidance states that this regulatory easement will be maintained until 30 June 2020, but the Regulator will review this as appropriate.

For the avoidance of doubt, the Regulator expects employers to comply with the full 60 day consultation if all the above criteria have not been met.

Comment

It is helpful that the Regulator has provided some clarity as to how the automatic enrolment requirements fit with the Job Retention Scheme.  It is particularly helpful that the Regulator has confirmed that a full 60 day consultation does not need to take place where an employer wishes to reduce contributions in respect of furloughed employees to the automatic enrolment minimum. In this time of great uncertainty this flexibility from the Regulator is to be welcomed.