Employers risk breaching regulations if impact of job retention scheme on pensions is misunderstood

Employers and Trustees could be at risk of inadvertently breaching regulations if the Coronavirus Job Retention Scheme (CJRS) is not fully understood in the context of calculating pension contributions says RSM.

The leading audit, tax and consultancy firm urges Trustees and employers to make sure they fully understand the implications of not getting the pension calculations correct for furloughed staff.

If contributions have been incorrectly deducted and not invested in members’ chosen funds, any unwinding at member level will be costly and complex. Any errors could lead to employers being faced with expensive remedial work to make sure members of the pension scheme have not been disadvantaged in any way.

Trustees could also be in breach of their statutory duties if contributions are not calculated and paid in line with the Payment or Contributions Schedule, and a report is required to The Pensions Regulator.

Karen Tasker, audit partner at RSM, said: ‘This will become a greater issue as the furlough scheme reaches its end, with reduction of the grant and flexi furloughing adding another layer of complexity.

‘This issue is particularly complex when it comes to salary sacrifice arrangements. 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. HMRC has confirmed that the full grant should be paid in money to the employee and cannot be used towards benefits provided through salary sacrifice schemes, including pension contributions.’

Under the government grant, employers can only claim employer pension contributions based on statutory minimums. Legislation allows for 100% penalties for incorrect claims and recovery of overclaims from employers and directors.

Finally, any employer that has mistakenly taken a salary sacrifice off the furlough grant pay received from HMRC before it then paid the employee, needs to correct the position by 20 October for claims made before 22 July or within 90 days of any new furlough claim to avoid HMRC penalties, or any possible claims for unlawful deductions from wages.