Coronavirus – the impact on pension arrangements

The Pensions Regulator (TPR) has issued guidance on a number of COVID-19 related issues that arise in the context of the different pension arrangements in the UK.

Links to some of this guidance on pension arrangements are below along with our summary:

• What you need to consider
• Automatic enrolment and Defined Contribution pension contributions
• Defined Benefit scheme funding guidance

Automatic enrolment for pension contributions

• For employees that are furloughed, contributions to a qualifying automatic enrolment scheme should continue, but based on the actual pay of the employee. So if their pay is reduced to say 80% (which, subject to a cap of £2,500 per month, is the maximum covered by the Government’s Coronavirus Job Retention Scheme (CJRS)), the normal percentage will apply to the reduced pay.
• Under CJRS employers are also reimbursed for the statutory minimum employer pension contribution (3%) for furloughed employees.
• However, if the normal employer pension contribution to the automatic enrolment scheme is higher than the statutory minimum, e.g. because it is higher than 3%, or because the employer agrees to pay more than the 80% of salary covered by CJRS, or they use salary sacrifice for the contributions, the employer will have to pay the difference.
• If an employer wants to reduce its contributions to the statutory minimum, there are a number of factors to consider. These include, for employers with at least 50 employees, a requirement to consult with employees for a minimum of 60 days before any reduction can be applied.
• However, TPR have recently confirmed that, if an employer proposes to apply a reduction only to furloughed employees and only for the period for which they are furloughed, the normal requirements to consult do not apply. The employer must still write to all affected furloughed employees (and their representatives) to confirm the reduction and the effect of the reduction. This easement applies until 30 June 2020.

Defined benefit schemes

As has already been covered in the media, a number of employers have sought, or are seeking, agreement from scheme trustees to suspend payments currently required to meet a funding shortfall in their defined benefit scheme.

Any employer seeking an agreement is asked to support the scheme trustees (and their advisers) by providing them with the information they need to assess:

• the impact of COVID-19 on the employer covenant
• the affordability of deficit repair contributions (DRCs).

TPR recognise that employers may not be able to provide scheme trustees with all of the information that they would normally need to be able to assess the employer covenant and have therefore recognised that trustees may feel compelled to agree the request, but TPR have stated that this should be for the “shortest period possible” and no longer than three months. As part of any agreement, employers must commit to providing the trustees with all relevant information “in a timely manner”.

Risks to savers generally

Both TPR and the FCA are concerned about the risks to savers in the current circumstances, particularly the potential for decisions on transfers out of defined benefit schemes. You can read more here.

General regulatory easements

Finally, TPR has also announced a number of other temporary easements, including on whether any breaches need to be reported.

If you would like to discuss any of the above issues or any other issue connected with your pension arrangements, please contact our Pensions and Benefits team.