Pension providers and advisers have reported widespread confusion as to how the Job Retention Scheme will impact firms who use salary sacrifice schemes for pension payments – saying more clarification from the government is needed.
Premier Benefit Solutions head of employer services Sue Pemberton says the firm is dealing with numerous enquiries about this issue from clients. “There is a lot of confusion and frustration about how this scheme works.”
As she points out current guidance from the government indicates that those who firms who use these arrangement will receive lower payments under the Job Retention Scheme, designed to pay 80 per cent of furloughed workers’ salary.
This is because payments will be based on an employee’s earnings after salary sacrifice. She points out that the key date for their “reference salary” is February 28, before the pandemic took hold, so firms that cancel these arrangement now not see any benefit.
She says: “We have not got as much information from the government as we’d like on this issue.”
Pemberton says this creates further financial difficulties for those looking to make up the shortfall in employees’ salary during this period.
Royal London proposition strategy and insight manager Ronnie Morgan says he would welcome further clarification on a number of issues.
However he agreed that it was clear that employers using salary sacrifice will get back less from the Job Retention scheme than if that had not operated such an arrangement.
He says: “Changing these arrangements now would not alter the grant, based on our interpretation of the most recent guidance.”
However he adds that if an employer is topping up an employee’s salary then the employee may wish to be removed from this salary sacrifice arrangement, so they they can reduce their pension contribution, to the AE minimum, and increase take-home pay until things return to normal.
Moregan adds: “Recent guidance did confirm that Covid-19 is being treated as a ‘life event’ that would effectively warrant changes to a salary sacrifice arrangement.
He adds: “This is likely to have an impact on both employer and employee national insurance contributions though. It would be useful to get clarification on this issue.”
Morgan says that there are also “timing issues” to do with how often this information needs to be inputted into the government portal. “Are employers just entering this information once or on a monthly basis? If an employee decides to cancel their pension contribution at a later stage, then this means employers do not have to contribute either. Greater clarity is needed around this but we may have to wait until the government portal is open.”
Punter Southall Aspire managing director Alan Morahan says he does not envy the role of HR and payroll functions in many firms at present – with many employees being furloughed part-way through the month and pension contributions and relief at source being applied to different periods during the month.
“We are getting asked questions about salary sacrifice, but this is an employment law issue and we have to be very careful about any guidance we are giving. It is never nice to have to caveat our conversations with this.”
He says these complex issues have mean that advisers are effectively “learning on the job”.
“It is like the first year of auto-enrolment, where we are just trying to read as much as we can about these issues. It is an extremely challenging time for employers.”
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