Pensions – What savings can you make and what can you reclaim in respect of furloughed employees?

07 / 04 / 2020

Employers and employees alike are facing extreme financial difficulties.  Whilst cutting pension provision is not necessarily a wise step long-term, making temporary changes to your pension provision can have a significant impact on your cash-flow and may help avoid cutting salaries and jobs.  Our experienced Pensions & Employee benefits team can talk you through the potential changes you can make, and they’ve provided some general comments below to explain where you might be able to make some savings:

  1. Pensions Savings – for all employers (irrespective of whether you are furloughing staff)

Employers (irrespective of whether they are using furlough) may be able to make significant cost-savings during this difficult time by reducing their pension contributions.  Many employers may think they are paying the statutory minimum already, simply because they are paying a “3% employer contribution”, but if you’re paying 3% on basic salary there are further savings you could make.

Areas we can help:

  • identification of areas you can make pension contribution savings;
  • advice on the statutory consultation requirements and the application of the present relaxations;
  • review and amendment of contractual entitlements to pension contribution; and
  • implementation.

2. Pension provision for furloughed staff

if you are furloughing staff do you know how much of the pension contribution you’re paying you’ll be able to reclaim from HMRC under the furlough scheme?  The amount you can reclaim will be lower than 3% of their full furlough pay.

Areas we can help:

  • Identification of issues which will affect the amount recoverable:
    • salary sacrifice: If you use salary sacrifice we can advise how this interrelates with the furlough scheme.  Salary sacrifice does impact the amount you’ll be able to recover under the furlough scheme.  The headline comment is that salary sacrifice can make the furloughed employee and the employer “worse off” than if salary sacrifice was not in place; “HMRC has confirmed that COVID 19 counts as a “lifestyle event” that could warrant changes to salary sacrifice arrangements.  We can advise employers on the possibility (and potential benefit) of cancelling or changing existing salary sacrifice arrangements for furloughed staff.”
    • we can analyse your current pension contribution structure (again, it is more complicated than just saying “3% / 5%”) to identify the potential gap between (i) what you’re paying; and (ii) what you can recover from HMRC under the furlough scheme.
  • Advice on whether you can make changes to your pension benefit structure as per (1) above, to maximise your savings at this difficult time.