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Law360, London (August 4, 2020, 3:45 PM BST ) Employers should be careful when paying their workers' pension contributions or they risk breaking the law when they take over from a government program that has been covering the payments, tax and pensions experts have warned.
They fear that employers and trustees could find themselves breaching the rules if they fail to properly calculate pension contributions for employees who have been furloughed under the government program to support business during the COVID-19 outbreak.
Tax consultancy RSM said on Monday that some calculations could be costly and complex for employers, such as in cases in which they have not correctly worked out their contributions or invested them in their members' chosen funds.
Trustees must also ensure that contributions are calculated and paid according to the payment or contribution schedule, or they could be in breach of rules, the consultancy added.
"Some employers may not appreciate that furlough pay should be based on post-sacrifice pay, and this is what the government grant will be based on," Karen Tasker, audit partner at RSM, said.
Businesses have had to return this month to paying their auto-enrolment contributions and national insurance contributions for furloughed employees, after the government said it would stop doing so under its coronavirus job retention scheme, known as CJRS.
Under auto-enrolment, employers put staff into a pension scheme and make contributions towards their pension.
Furloughed workers or employees who cannot do their work because of the pandemic were placed on leave under the CJRS, which was set up in March. They have been able to go back to work part-time and also receive 80% of their pay, with a cap of £2,500 ($3,250).
According to HM Revenue & Customs the full grant should be paid in money to workers and cannot be used toward benefits provided, such as pension contributions, Tasker added.
"Legislation allows for 100% penalties for incorrect claims and recovery of overclaims from employers and directors," she said.
Employees should reinstate their higher pension contributions for furloughed workers returning to work, Kate Smith, head of pensions at financial services provider Aegon, said. They will have to conduct a 60-day consultation if they plan to lower their pension contributions to the auto-enrolment minimum for longer, she added.
"Under no circumstances should employers stop paying pension contributions: this is illegal and will attract fines," Smith said.
The government has also turned to the banking sector as it seeks to help businesses survive their COVID-19 troubles.
And the Financial Conduct Authority has allowed flexibility with some rules for industry but kept an eye over the treatment of customers and others. The regulator said on Monday that it would intervene in cases where it finds that insurers are acting unfairly in their treatment of COVID-19 claims.
--Additional reporting by Martin Croucher. Editing by Ed Harris.
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