At Mearns & Company, we understand the disruption that the outbreak of COVID-19 has caused to everyone’s daily lives. We hope everyone is staying safe and doing their bit to minimise the impact to get through this as quickly as we can.
As workplaces are forced to close and projects are put on hold, business leaders are facing very tough decisions. With information constantly changing it can be difficult to make fully informed decisions.
Therefore, we hope the information here will help you get a better understanding of:
- Your company’s pension options
- The Government’s Coronavirus Job Retention Scheme and its impact on pensions and employee benefit insurance schemes
- Your options for other insured benefits
- The important benefits that are available to your employees
Other guidance and support is available to help businesses at this difficult time. More information is available at: https://www.gov.uk/coronavirus.
Your pension options
After salaries, bonuses and National Insurance contributions, pension contributions are often an employer’s biggest employee related expense. As a result, many businesses are exploring their options to reduce these costs.
Can you stop employer contributions to your workplace pension scheme?
It is not be possible to stop pension contributions. You must continue to assess and enrol all eligible employees to your workplace pension (aged 22-66 and earning more than £833 per month).
Your employees can decide to opt-out of the company pension scheme to stop their own personal contributions being paid. Some people might choose to do this in response to their own personal financial situation. However, employers cannot encourage staff to do this, or influence this decision in any way, as this is an offence under Automatic Enrolment legislation.
If any employees choose to opt-out of the scheme, the company no longer needs to pay employer contributions for those people.
Can you change the pension contribution basis?
Provided that the level of ongoing contributions continues to meet statutory minimum requirements, then changes can be made. The minimum contribution level, as confirmed by The Pension Regulator is set out below:
- 3% employer contribution
- 5% employee contribution (4% net after basic rate tax relief)
- Only banded earnings are pensionable (between £520 and £4,167 per month)
Many companies pay contributions based on basic pay and not banded earnings. It is also common for companies to pay employer contributions greater than 3%. Therefore, changing your pension scheme contribution basis could generate significant savings.
There are a couple of things you’ll need to check first:
- Will your current pension scheme provider allow you to do this?
We are generally finding pension providers willing to support such changes.
- Do your employment contracts allow you to do this?
If they don’t, employees will probably be willing to accept a short-term change given current circumstances.
If you are able to do this, and you decide to do so, you will need to:
- Tell your employees
- Tell your pension provider
- Keep a record just in case The Pensions Regulator asks for evidence in the future
The Coronavirus Job Retention Scheme
To help employers that have been severely affected by Covid-19, the Government has launched The Coronavirus Job Retention Scheme (The CJRS). The CJRS is designed to support employers with employee related earnings, National Insurance, and pension costs for employees who are not working for their employer – ‘furloughed employees’.
This was initially proposed to last for three months starting from 1st March 2020 but, as announced on 17th April, this has now been extended for a further month. Employers can participate at any point during this period (1st March 2020 – 30th June 2020). The Government may decide to extend this scheme further on the same or varied terms.
Full details of The CJRS are available here; however, the important benefits are:
- Reimbursement for 80% of an employee’s usual monthly earnings (up to £2,500 per month). For salaried employees, this will be based on their basic monthly salary on 28th February 2020, but full details on how to calculate the relevant monthly earnings are available here.
- Reimbursement for the employer National Insurance payable on the 80% of ‘usual monthly earnings’ calculated above.
- Reimbursement of the minimum employer pension contributions based on 80% of the ‘usual monthly earnings’.
Focusing on the pension contribution reimbursement, it is important to note that this is not linked to the employer contribution you currently make to your workplace pension scheme. The reimbursement from the Government will cover 3% of the 80% of ‘usual monthly earnings’ between £520 and £2,500 (£512-£2,500 in March 2020). Employees would also be required to contribute 5% of earnings in the band (including basic rate tax relief, so 4% deducted by payroll).
The amounts that the CJRS will reimburse might be clearer with some examples.
Employer National Insurance has been excluded because with the CJRS it is cost neutral and does not affect employees.
- It is very unlikely that you will have a clause in your employment contracts that would allow you to designate an employee as a ‘furloughed employee’ and pay them under the terms of the CJRS. Therefore, you will have to agree these changes with employees; you may have to follow your usual consultation process. The Institute of Directors has provided suggested sample wording for an employee letter which might also be of help (IoD link).
- You can top-up the salary and/or pension contributions for ‘furloughed employees’ above the CJRS’s reimbursement levels. However, these additional costs would not be reimbursed by the Government.
- You cannot pay an employee less than 80% of ‘usual monthly earnings’ unless they are impacted by the £2,500 cap. This means that you cannot use salary sacrifice for employee pension contributions. In any case, there would be no benefit to the employer of operating salary sacrifice as the CJRS reimburses the employer National Insurance costs.
Impact on other insured benefits
As ‘furloughed employees’ will remain in employment, they will generally still be covered by your group risk (life assurance, income protection, critical illness) and health care plans. However, some policies exclude cover for employees who are not actually working for their employer. In this case, ‘furloughed employees’ would not be covered.
In the event of a claim, most group risk policies set the benefit payable against an employee’s earnings on the date of the claim. Should an employee die / start long-term sick leave / suffer a critical illness while on ‘furlough’, the benefit they would receive is likely to be reduced by the same proportion as their earnings have been reduced. This will also apply if you reduce your employees’ salaries but do not ‘furlough’ them. We are aware that some insurers have already confirmed that you can preserve benefit entitlements against earnings before pay reductions or ‘furloughing’ employees became necessary. We expect that the market will generally be accommodating and keen to support employers.
Therefore, you should check your policy documents or ask your insurance provider or employee benefits consultant for clarification on these points.
Your options for other insured benefits
After pension costs, insurance premiums tend to be the next biggest employee benefit costs. Businesses are generally wondering not only if they can make any changes to reduce their cost but also, if they should.
To answer the first questions, most group risk (life assurance, income protection, critical illness) policies can be cancelled or amended, as can some healthcare policies. However, all of this would depend on the specific terms of the policy.
The second question is more difficult to answer. Most employee benefits packages only cost the equivalent of 2-4% of payroll, so there are not significant savings to be made.
Some of the benefits these policies cover may be contractual, so cancelling or amending them may leave you with uninsured liabilities – for example, you might have to pay £100,000s to an employee who goes on long-term sick leave or to the family members of a deceased employee. In this case, small short-term savings could leave you with large long-term liabilities.
Breaking insurance cover might result in some employees not being covered for the same benefits when these policies are subsequently reinstated. For group risk policies, some employees might have had to provide medical information to be covered for higher benefit entitlements. Breaking their cover might mean they have to go through this process again, with no guarantee that they will get the same level of cover again. For some healthcare policies, a break in cover might mean that some employees or their family members might no longer be able to get treatment for certain medical conditions.
Cancelling policies will also mean that employees, and in some cases their family members, will no longer have access to the additional benefits that are provided by the insurance companies. These benefits are explored more in the next section.
The important benefits that are available to your employees
The adjustments that we have all made to our daily lives has likely put strain on our physical and mental health. While we all might be tempted to ‘keep calm and carry on’, there is a lot of support available.
Insurance providers generally make a wide range of support services available at no additional cost to employers or employees. In some cases, these benefits are also available to family members as well.
You should ask your insurance provider or employee benefits consultant about what services are available to you and your employees. These might include some of the following:
Remote GP services
Accessing medical advice is very difficult at this time. Remote GP services gives access to video or telephone consultations with qualified GPs.
These services should not be used for Coronavirus related symptoms. If someone has COVID-19 symptoms, they should visit https://111.nhs.uk/covid-19/ for advice instead.
Mental Health & Wellbeing Support
Services available often include telephone advice and support, and online information. Support covers a wide range of everyday problems relating to work, family, relationships, health and household finances.
As we adjust to our new work environments, we should all take care of our bodies. Our backs, shoulders, and arms are particularly vulnerable to unsuitable working positions. Some providers offer video physiotherapy consultations and treatment.
Nutrition and exercise consultations
To help keep us fit and healthy, some insurance providers offer access to fitness and nutrition experts that can design personalised diets and training programmes.
Running a business and looking after employees is difficult at the best of times, and we understand the added pressure that has been caused by the current situation.
We hope the information provided here will help guide your decision making in the coming weeks and months. Please let us know if you need any more information about the topics covered here or have any specific questions about your employee benefits.
Steven McKay Dip PFS