Do employers have to pay pension contributions for furloughed employees?
Note: The Coronavirus Job Retention Scheme closed on 31 October 2020 and has been replaced by the Job Support Scheme from 1 November 2020. The last date on which employers can submit or amend claims for employees furloughed under the Coronavirus Job Retention Scheme is 30 November 2020.
Yes, employers must pay employer pension contributions for furloughed employees. The Coronavirus Job Retention Scheme does not change an employer's obligations under its pension scheme. A reduction in contributions may not be possible without a change to the scheme rules. If the employer has a contractual obligation to pay more than the minimum automatic enrolment employer contributions, it will need to obtain the employee's agreement to any reduction.
Employers with 50 or more employees have a duty to consult employees for at least 60 days before reducing pension contributions. However, the Pensions Regulator has indicated that there are some circumstances in which it will not take regulatory action against an employer that fails to consult furloughed employees for the full 60 days.
Employers can make a claim to HM Revenue and Customs (HMRC) under the scheme to recover 80% of the wage costs of furloughed employees, up to £2,500 per month. Until 1 August 2020, the employer could also claim for the pension contributions it pays on this reduced wage, limited to the 3% minimum employer contribution, on earnings above the lower limit of the qualifying earnings band, required under pensions auto-enrolment provisions.
If an employer makes higher pension contributions than the minimum required under the auto-enrolment provisions, it cannot include the additional pension contributions in its claim to be reimbursed by HMRC.
For claim periods starting on or after 1 August 2020, employers can no longer claim for minimum pension contributions or employer national insurance contributions under the scheme.
HMRC has published guidance on calculating a claim for employer's pension contributions, which includes example calculations.