Covid-19: The Pension Regulator’s advice for employers

On the 9 April 2020, the Pension Regulator (TPR) issued guidance in relation to the impact of Covid-19 on employers in respect of automatic enrolment duties, maintaining pension contributions, the Coronavirus Job Retention Scheme and specific advice for DB schemes.

Automatic enrolment duties

Employers’ automatic enrolment duties continue to apply whether employees are working or furloughed. An exception to this position relates to new employers who can postpone their duty to assess new or newly eligible staff, and therefore postpone pension contributions, for up to three months. For an employer carrying out re-enrolment duties, an employer can elect a later date to assess staff for re-enrolment, within a three month time frame.

Maintaining pension contributions

There are no changes or dispensations for either employer or scheme members’ obligations to make contributions. Although many will be facing financial uncertainty and strain, employee’s should not be actively encouraged to reduce their pension contributions, opt out or cease active membership of a pension scheme.

Financial support for furloughing staff will cover pension contributions. The Coronavirus Job Retention Scheme permits employers to make a claim for a grant to cover the 80% of furloughed worker’s salary or wage (capped at £2,500 per month). The grant will also cover the statutory minimum employer pension contribution on those wages.

Coronavirus Job Retention Scheme (CJRS)

TPR have provided further clarity on the CJRS for employers, but there are no relaxations of the rules. In summary, employers should:

  • continue normal payroll processes, even for furloughed employees, meaning tax, national insurance and pension contributions continue to be deducted;
  • continue to provide pension providers with updated contribution schedules;
  • continue to follow their pension scheme rules;
  • be aware that if they are required to pay more than the statutory minimum automatic enrolment contribution, the excess will not be funded by the CJRS scheme;
  • consider whether employer contributions can be reduced to the statutory minimum under a DC pension scheme by checking the governing documents of the scheme; and
  • consider whether employer consultations are required to take place before changes are implemented. 

Considerations for employers with DB pension schemes

TPR has confirmed its position regarding reduction or suspension of deficit recovery contributions (‘DRCs’) to DB pension schemes, in line with its recent advice to trustees.

New arrangements for reducing or suspending DRCs or new debt being secured over employer assets may be permitted provided:

  • the need can be justified;
  • there is a plan for the deferred payments to be caught up;
  • there is a plan to mitigate any detriment to the scheme wherever possible; and
  • the scheme is treated fairly with other stakeholders and payments to shareholders have ceased.

TPR also expects employers to provide trustees with regular updates to enable them to monitor the employer covenant and the affordability of DRCs and to document the position carefully.

Final comments

TPR is concerned to ensure pension contributions continue as normal as far as possible and that pension schemes are not disproportionately exposed to Covid-19 risks. However, TPR has stated it will take a reasonable, pragmatic and proportionate approach to scheme funding and reflect prevailing market conditions in its processes.

Further guidance for employers is expected to be issued in the week commencing 14 April 2020.

Co-authored by trainee solicitor, Jessica Lewis.