Government quashes fears it would suspend auto-enrolment pension contributions during the coronavirus outbreak
Workers who are furloughed because of the coronavirus pandemic will get their pensions and National Insurance (NI) contributions paid, the Government has announced.
The move comes after the Government said it would offer to pay up to 80% of salary – up to £2,500 a month – to staff kept on by their employer.
From 1 March, employers will be able to reclaim from the Treasury the minimum auto-enrolment pension contributions for each worker as well as NI payments.
It follows concerns that the Government would suspend auto-enrolment pension contributions during the outbreak because of the cost to companies.
There have also been fears that some companies would make staff redundant because of the cost of keeping them on the books, even though the Government was offering to pay the wage bill.
What is auto-enrolment?
Auto-enrolment, which makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme, was introduced in 2012.
The minimum contribution rate increased from 5% (3% from employee, 2% from employer) to 8% (5% from employee, 3% from employer) in 2019.
So far, more than 10 million people have been enrolled on a workplace pension.
What will happen to pension savings?
For furloughed staff the minimum auto-enrolment contribution from employers will be 3%, up to a maximum of £2,500.
This means the maximum amount of pension contribution the Government will pay will be £59.40 a month.
Employers making contributions above the legally required minimum 3% will not be reimbursed.
Employees will still need to pay the 5% to get the Government contribution.
However, workers earning above £2,500 could see their auto-enrolment contributions fall significantly, AJ Bell has warned.
Someone on average UK earnings of around £30,000 who is furloughed will see their monthly pension contributions drop by 20% to £158.
Meanwhile, someone earning £50,000 and contributing the auto-enrolment minimum in 2020/21 who is furloughed on £2,500 a month will see their monthly pension contributions fall from £292 to £158.
Former pensions minister Ros Altmann says: “The Government has had to make a difficult decision, between protecting pension contributions in full, which could cost far more than the minimum, and controlling costs to the public purse.
“If the employer still wishes to reduce contributions, it would need to consult with the workforce and agree new arrangements. Of course, workers can still decide to save money by opting out of auto-enrolment, but this would mean they would then lose the employer pension contributions too."