PART 2 – FURLOUGH – DO YOU UNDERSTAND THE IMPACT ON YOUR PENSION ARRANGEMENTS? IT’S NOT TOO LATE TO FIX ANY PROBLEMS!

08 / 07 / 2020

There is no doubt that the world has changed dramatically in the last few months and many employers have had to react quickly to save their businesses. For many this involved implementing furlough in a hurried manner. Some clients may have taken advice with regards the implementation and potential impact of furlough. Some may not have had the opportunity to do so. Whilst this was completely understandable we are now being approached by a significant number of businesses who did not take full advice on their furlough arrangements and are now concerned about some of the more complicated aspects such as:

  • How much should we deduct, under the salary sacrifice arrangement, from our furlough workers’ salaries?
  • Upon which element of the salary is the employer’s pension contribution based when the furloughed employee is in a pension salary sacrifice arrangement?
  • Are my furloughed staff members who were active members in a final salary sacrifice scheme during their period of furlough?
  • The pension scheme or separate life assurance scheme provides a lump sum death in service benefit which is a multiple of the employee’s salary. Is that multiple based on their salary pre-furlough or post-furlough?

Are you confident you know the correct answers to these questions?

Where there has been a change to the level of benefit provided to (or in respect of your workers) have you clearly communicated this to them? See also our article in Part 3 of this edition of Pensions Compass relating to Employer Communications.

We highlighted in this article ( https://wedlakebell.com/pensions-what-savings-can-you-make-and-what-can-you-reclaim-in-respect-of-furloughed-employees/ ) some of the key considerations for when implementing furlough and we particularly highlighted the complications which arise in relation to salary sacrifice. The manner in which furlough affects pension deductions and contributions for workers who participate in salary sacrifice for pension provision can be particularly complex. We would urge any employers who have furloughed staff who participate in a pension salary sacrifice arrangement to conduct a health-check of the implementation to ensure they have achieved the desired effect and to ensure they are not under or over-paying/deducting contributions.

In our recent bulletin we explained the forthcoming changes to the government’s furlough scheme. This is likely to add to the complexity, and potentially the confusion surrounding some of the practical elements of implementing furlough pay and benefits for workers. If you are concerned or unclear about the potential implications for your business, staff for benefit provision please do get in contact with us. We’ll spend the time working through what you’ve already implemented, explaining the impact of those measures, and advise you on further changes you may wish to make to ensure your have optimal arrangements in place during this difficult time of change.

Whatever your changes (whether reduced hours, home working or other arrangements) our Pensions & Employee Benefits and Employment Teams have the expertise to assist you.