PensionsSep 24 2020

Pension contributions left out of new job support scheme

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Pension contributions left out of new job support scheme

HM Treasury has confirmed that its new Job Support Scheme will not cover employer pension contributions, which has raised concerns about how employers will comply with auto-enrolment obligations.

FTAdviser understands that under the new scheme, the government will not cover pension contributions or class one employer national insurance contributions, which will remain payable by the employer.

Further guidance will be published in the coming weeks which will set out how employers should calculate pension contributions under the new scheme.

Tom Selby, senior analyst at AJ Bell said this wasn't particularly surprising as the government begins to slowly withdraw support.

He said: “Given the Treasury chose to pare back the furlough scheme in August by requiring employers to pay the minimum auto-enrolment contributions of 3 per cent as well as national insurance contributions, it is no surprise to see the new, slimmed down package of support measures also leave this burden with the employer. 

“Rishi Sunak has said he only wants to protect ‘viable’ jobs, and it seems part of the Chancellor’s definition of ‘viable’ includes an ability and willingness to support employees saving for retirement.

“So while the news of continued government support will be a lifeline for many firms, they will be required to pick up a much greater share of the tab than previously. It therefore seems inevitable that, despite this extra help, unemployment will spike as Christmas approaches.”

But Kate Smith, head of pensions at Aegon, said the move could send the wrong signal about saving into a pension.

She said: "Under the job retention and kickstart schemes the government protected pensions by covering the cost of employer auto-enrolment contributions.

"This sent out really powerful messages about the importance of pension saving. So it’s really disappointing that the new jobs support scheme isn’t doing the same. Employers will have to cover these costs and make sure contributions are paid correctly and timely."

'The potential for errors is huge'

Meanwhile, Anne-Marie Winton, partner at specialist pensions law firm Arc Pensions Law, warned the new scheme could cause extra confusion when it comes to adhering to pension liabilities.

She said: “These new changes have the results to generate significant additional confusion amongst already stressed and confused employees and employers about how to correctly operate automatic enrolment. 

“The potential for errors is huge, so I would hope that there will be a very lenient approach from The Pensions Regulator to accidental non-compliance.”

Announced today as part of the government’s 'Winter Economy Plan', the Job Support Scheme will see the government contributing towards the wages of employees who are working fewer than normal hours due to decreased demand.

The scheme will run for six months, starting from November.

It will be only open to employees who work at least a third of their normal hours. These hours will be paid for by their employer, while the government and the employer will each pay a third of the remaining hours not worked.

That would mean an employee working 33 per cent of their usual hours would receive 77 per cent of their normal wages.

'Sleight of hand'

But Tim Stovold, head of tax at accountancy firm Moore Kingston Smith said, that in a "clever sleight of hand" the scheme was almost self-financing.

He explained: “An employee who normally earns the national average salary of £25,000 but returns to work for one-third of their hours, will earn a monthly salary of £1,620 - with the government paying £463 of this amount.

"But HMRC will be receiving back £338 in tax and NI, which means the net monthly cost to the Treasury is a cheap as chips £125. For higher earners, the Treasury will receive more than it pays out.”

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