CJRS and its impact on pensions: everything you need to know

This is a guest blog written by Kay Ingram, Director of Public Policy at LEBC (an REC accredited business partner providing workplace pensions and auto-enrolment solutions.)

The current extraordinary economic climate has led to many employers utilising the coronavirus job retention scheme (CJRS) and furloughing employees. We have had lots of questions from clients over the past couple of months about the impact CJRS has had on pensions - here are some of the most popular. As an accredited business partner of the REC for Workplace Pension Scheme Solutions, we can help answer any further questions you may have on this subject and we hope you find this blog on the CJRS and pensions useful.  

Pensions

Employees who wish to benefit from the employer auto enrolment pension contribution must continue to pay their own 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.

You are free to top up wages to full contractual pay and to continue to provide pension contributions above the statutory minimum where these are part of the benefits offered. If you are reducing pension payments 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.

Salary sacrifice pension payments

Where you use salary sacrifice to fund pension schemes the contractual entitlement to pension contributions will be based on pre-furlough salary. However, the reference salary for 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. Take care not to encourage employees to opt out of statutory minimum pension provision as this could lead to enforcement action from The Pensions Regulator.

CJRS Grant

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 as shown in the table below with employers asked to make up part of the payment:

N.B. The wage cap on the grant is proportional to the contractual hours not worked.

Where the CJRS grant is below £520 per month no employer pension contributions will be payable.

Partial return to work

From July employees may return to work part time and receive full contractual pay on a pro rata basis. The CJRS grant can only cover the hours not worked.

For salary sacrifice 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 must be paid in full), nor leave the employee receiving less than the National Minimum Wage or National Living Wage for the hours worked. You may need to restrict the amount salary sacrifice pension contribution allowed for an employee whilst they are on furlough.

Our webinar “The Devil is in the Detail” explains the issues surrounding furloughed employees and salary sacrifice pension funding and you can watch it here.

For more information please get in touch with us here.