Coronavirus job retention scheme will cover AE contributions

James Phillips reports...

Furloughed workers will continue to receive pension contributions under the government’s coronavirus job retention scheme, HM Revenue & Customs (HMRC) has confirmed.

Employers who would otherwise need to lay off staff due to the Covid-19 crisis will be able to claim for 80% of an employees’ usual monthly wage costs, up to a maximum of £2,500.

Guidance published yesterday (26 March) revealed the scheme will also cover the additional costs of employers’ National Insurance (NI) and pension contributions at the automatic enrolment (AE) minimum level of 3%.

Although the 80% will be provided by the government, employers can choose to top up salaries to 100% if they are able to do so. The government will not fund the additional NI or AE contributions on the remaining 20%, however, nor any voluntary contributions above the 3% minimum.

Employees will also continue to pay pension contributions on qualifying earnings unless they have opted out or ceased working into a workplace pension scheme.

There had been speculation that the government was considering suspending the requirement for employers to pay AE contributions during the pandemic, but this has not come to fruition.

The Pensions and Lifetime savings Association welcomed the guidance. Head of defined contribution, master trusts, and lifetime savings Lizzy Holliday said: “Wage subsidies to assist with the costs of employment are the best way to support businesses and employees, without negatively impacting on individuals’ financial future when we have come through this crisis.

“Under exceptionally challenging circumstances, savers can be reassured that employers are being supported to continue to contribute to their pension and that pension schemes across the UK are putting in measures focused on supporting savers and paying pensions during this difficult time.”

Firms seeking to take advantage of the scheme will be able to apply through an HMRC portal from late next month but, to qualify, employees must be kept on payroll even if they are not working.

For full-time and part-time employees, actual salary before tax as of 28 February should be used to calculate the 80%, excluding fees, commission and bonuses. For employees whose pay varies – such as those in the gig economy or on zero-hour contracts – the claim should be the higher of either the same month’s earning from the previous year, or average monthly earnings from the 2019/20 tax year.

Pay will be backdated to 1 March if required, and will also be available if a company has gone into administration.

Further guidance will be issued on how employers should calculate their claims for National Insurance and AE pension contributions.