Leading pensions and employee benefit advisor Quantum Advisory is calling for companies to make sure they fully understand how to treat furloughed staff in relation to pensions.
Partner and Actuary at Quantum, Stuart Price, took part in the recent COVID-19 Impact on Business Webinar which saw experts from a host of industries including accountancy, wealth management, employment law and commercial property explain the corporate, as well as personal, effects of the current pandemic.
Stuart’s key message to attendees was that companies can alter what they pay to the defined contribution pension arrangements they offer to furloughed staff to ensure they meet the statutory minimum but don’t pay more than they can afford.
“Although common practice in America, furloughing staff is a relatively new concept in the UK, and some companies are, quite rightly, unsure how it impacts pension contributions. In particular, there may be confusion about what happens if an employer pays more contributions than required for Auto-Enrolment.
“There is the option for furloughed employees to opt out of their pension scheme so the employee and employer won’t pay anything. The employer cannot force or encourage employees to opt out and opting out will mean the employee could lose their life cover if it is linked to the pension scheme. They may also struggle to eventually re-join the scheme on their current terms. Alternatively, if the scheme allows, they could take a temporary break, which will usually entitle them to continue to be protected for life assurance benefits.
“Since our last webinar two weeks ago, there has been clarification within the industry that businesses can change scheme contributions without the usual 60-day consultation process, which may help struggling employers. They simply need to advise the furloughed employee of their decision and contributions need to return to the normal level once furlough ends.
“Another issue that has arisen is that many pension schemes are set up via a salary sacrifice arrangement in order to save on National Insurance, but under furlough rules, salaries can’t be reduced, so the employer has to pay both employee and employer contributions. To overcome this, companies should stop the salary sacrifice arrangement while employees are on furlough so both employees and employers pay their own contributions.”
The webinar on Friday 24 April was the second in the series featuring Damian Phillips – Darwin Gray, John Solosy -Solosy Wealth Management, Mark Boughey – Mazars Accountants UK, and guest speaker Ross Griffin – Savills. The panel also discussed how to manage work place benefits, business restructuring, employment law and ways to protect the financial security of businesses.
For more information https://quantumadvisory.co.uk.