The Pensions Regulator has warned employers against encouraging savers to opt out of auto-enrolment, as it relaxed its rules to allow them to cut some contributions without consultation.
TPR today (April 9) published guidance on how employers can meet their auto-enrolment duties as they continue to navigate the effects of the coronavirus crisis.
The regulator said even though staff may choose to reduce their contribution levels or opt out of the pension scheme altogether, the employer must not encourage this and should continue to carry out its obligations under the exisiting pension scheme rules.
However, where an employer is paying above the minimum contribution rate of 3 per cent, it can choose to reduce this to the minimum level for furloughed staff without consultation and TPR will not take any enforcement action. The same is not possible for non-furloughed staff.
Under existing rules, businesses that employ 50 or more workers would have to consult for 60 days before they are able to decrease contributions into a defined contribution scheme.
But because of the cashflow pressures being faced by some businesses due to the effects of the coronavirus, TPR said in particular circumstances it will “not take enforcement action” where employers reduce contributions but do not follow the consultation rules.
TPR’s head of automatic enrolment, Joe Turner, said: "These are unprecedented times and we are acutely aware of the pressure employers are now under. While employers continue to have responsibilities, we are weaving in as much flexibility as possible to help employers and protect savers.
"We are continually reviewing and updating our guidance to respond to the challenges as they unfold.
“Further guidance will be published shortly outlining in more detail what employers can expect from us in the weeks and months ahead."
The temporary rules apply where the employer has furloughed staff for whom a claim is being made under the Coronavirus Job Retention Scheme, and will be restricted to the furlough period. Affected staff will have to be notified of the change and the effect it will have on their pension savings.
Steve Webb, partner at LCP, said: ‘Under the Job Retention Scheme, employers are only reimbursed for the legal minimum level of pension contributions and many employers will have been contributing more than this, leaving a funding gap.
“In normal circumstances, employers would have to spend a couple of months consulting about a reduction in contributions but these are not normal circumstances.
“It seems proportionate to allow employers to reduce contributions just for furloughed staff and just for the length of the furlough.”
The regulator has encouraged businesses to carry out as much consultation as possible and said the regulatory easement will be maintained until June 30, 2020, but this date will be reviewed as matters progress.
Ivor Harper, director at advice company Park Financial Limited, said: "From an overall public benefit position, allowing employers leeway makes sense if it is one small piece of aid that helps them survive.
"We all know how important it is to fund pensions but actually still having a job to go to right now is, I would argue, of much greater value.
"If anything, I would have gone further and allowed employers a suspension of their AE obligations for six months."
The government recently confirmed that the Coronavirus Job Retention Scheme would include the employer’s statutory minimum AE contributions.
If an employer makes a claim for a grant to cover the lower of 80 per cent of a furloughed worker’s salary or £2,500 per month, they will also be able to claim the statutory minimum employer pension contribution on those wages.
TPR has said if employers still struggle to pay their pension contributions they should speak to their provider to see whether they are offering any flexibility on payments.
The regulator has written to providers asking them to be as flexible as possible when agreeing contribution payment dates.
As previously announced the period in which schemes must report payment failures has been extended from 90 days to 150 days to give trustees and providers more time to work with employers to bring payments up to date.
amy.austin@ft.com
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