Questions remain about AE contributions in govt scheme

The government confirmed on Thursday that its job retention scheme will also cover employer auto-enrolment pension contributions – a minimum 3 per cent based on the furloughed salary.

Employers will receive a grant from HM Revenue & Customs to cover the lower of 80 per cent of an employee’s regular wage or £2,500 per month, plus associated employer pension contributions on that subsidised wage.

But Stephen Scholefield, partner at law firm Pinsent Masons, said the pensions measures leave some questions outstanding, such as how it will work for those using salary sacrifice and those accruing a defined benefit pension.

Employees on salary sacrifice have agreed a reduced salary in return for a higher pension contribution, but it appears only the reduced salary will be covered by the grant, along with the minimum pension contribution based on that reduced salary, he noted.

Therefore people may be worse off than if they had not sacrificed part of their salary, he said.

It is also unknown whether the grant for 3 per cent of qualifying earnings will apply to defined benefit schemes. If this was the case, it would not be enough to cover the cost of ongoing accrual, Mr Scholefield warned.

He also pointed out that by only paying the minimum 3 per cent of employer contributions, the government will not cover employers that pay into pensions at a higher rate.

He said: “Employers will have to decide whether to carry on with their current contribution structure or whether to reduce contributions to reflect the grant. 

“If they look to reduce then they may need to take a view on the usual 60-day consultation requirement, and clearly there isn’t time to do that.”

He added: “Further guidance on the pension contributions covered by the grant is to be provided, so it may be that some of this will become clear in the next few days."

This article originally appeared on FTAdviser.com