Halting companies’ mandatory pension contributions could form part of government remedies to support businesses during the Covid-19 pandemic, pension specialists have argued, since protecting jobs is as important as saving for retirement.
Chancellor of the exchequer Rishi Sunak has pledged he would do "whatever it takes" to support the economy through the current crisis.
He announced on Tuesday a £330bn war chest of loans to protect businesses against the financial difficulties caused by the coronavirus.
He said: "The coronavirus pandemic is a public health emergency but also an economic emergency. We will support jobs, businesses, incomes and help you protect your loved ones — whatever it takes."
Mr Sunak said he was taking a new legal power through the coronavirus bill to "offer whatever further financial support" he decided was necessary.
Nathan Long, senior analyst at Hargreaves Lansdown, has questioned if halting companies' auto-enrolment contributions could be part of the remedies the chancellor was looking at.
Introduced in late 2012, auto-enrolment has been a flagship pensions policy for the government. To date, more than 10m employees have been enrolled into a workplace pension.
The minimum pension contributions rate increased in April 2018 to 8 per cent, with companies paying 3 per cent and savers the rest.
Mr Long said: “Just halting the pension contributions for a short time won’t free up sufficient capital to protect businesses, especially when you think for most small businesses it will only be the minimum payments of 3 per cent of qualifying earnings.
“However, the chancellor couldn’t have been clearer that they will stop at nothing to ward off the economic side effects of coronavirus.”
Mr Long noted saving for retirement was critical to the future financial health of the country, but so was “ensuring job losses are minimised so people can keep a roof over their head and food on the table”.
“I suspect concerns for businesses would have to escalate significantly from here to warrant the temporary suspension of pension contributions.
“If it happened, a three-six month hiatus wouldn’t be too problematic in the grand scheme of things, but allowing it to drag on for much longer would risk doing huge damage to people’s future pension pots.”
Kate Smith, head of pensions at Aegon, said she would not support such measure.
She said a “consistent message coming from the government is the importance of timing, and at this stage pressing the pause button on employer pension contributions doesn’t feel the right time.”
For Steve Webb, former pensions minister and partner at Lane Clark & Peacock, the slump in demand facing some firms is so great that suspending auto-enrolment payments “would make very little difference”.
Nevertheless, Sir Steve noted that rules around mandatory pension contributions could come under the spotlight “as we move from the crisis phase to a longer-term 'recovery' phase,” and the government reviews all costs on businesses.
Stephen Scholefield, partner at Pinsent Masons, said it would need a change in law for the government to halt pension contributions.