Furlough and Pensions: How Could Coronavirus Affect Your Pot?

How Does The CJRS Scheme Work For Pensions?

The furlough scheme is currently in effect until the end of April 2021 and, to aid employee retention, the CJRS covers up to 80% of salaries (to a cap of £2,500 a month). Originally, the scheme also included employee contributions to workplace pensions at the minimum value, but since 1st August 2020, employers have been responsible for making these contributions.

The advice for both employers and employees is to continue making pension payments at the agreed amount, as laid out in their contract. By doing so, the idea is to keep the effect on pensions at a minimum.

What Does This Mean For Your Pension Pot?

The question of whether your pension has been affected by the furlough scheme depends on how high your contributions are.

Under auto-enrolment, your minimum monthly pension contribution is 5% of your monthly salary while your employer is required to contribute at least 3% in addition. Both you and your employer may choose to pay in a greater amount.

If your employer contribution levels are higher than the minimum, it is possible that they will have fallen in recent months, as under the furlough scheme your employer is only required to make the minimum contribution – 3%.

Furthermore, this contribution will be based on your furloughed salary. So, if your salary outside of the furlough scheme usually equals more than £2,500 a month, you are likely to be receiving smaller pension contributions – unless your employer has decided to make up the difference.

Communicate with your employer and stay informed about any changes to your workplace pension. This way, you can anticipate the potential knock-on effects to your pension pot sooner.

How Are Pension Salary Sacrifice Schemes Affected?

Pension salary sacrifice schemes involve accepting a lower salary in exchange for greater pension contributions from your employer, and lower National Insurance contributions for yourself. Unfortunately, salary sacrifice benefits are not included in the furlough scheme and your employer is not able to use the government grant to pay for them.

If you are enrolled in a pension salary sacrifice scheme, you may be losing benefits. It may be that your employer’s pension contributions have dropped to the minimum (3%), and this figure will be based on your furloughed salary, making it smaller still.

The good news is that your employer is contractually obliged to make up the payments. So, if losing benefits is a concern, talk to your employer about how contributions will be managed in the future.

What If I Have Had to Pay Less Into My Pension?

If you are furloughed and suffering a loss of income, you may have chosen to suspend your workplace pension contributions. Although it is possible to opt out of pension payments, keeping them suspended for an extended period of time will ultimately affect your pension pot.

For this reason, it is wise to think about other methods of cost-cutting before making the decision to opt-out of auto enrolment.

Should I Increase My Pension Contributions?

If your current income is adequate and you are concerned about how furlough may be affecting your pension, you may be considering how to counteract this yourself.

Increasing your own pension contributions is certainly an option, but before making this decision it is important to consider whether you can make higher contributions for a sustained period of time. Have you considered one off expenses such as car maintenance, vet bills and house repairs?

Something else to consider is whether the kind of retirement you want is achieveable without increasing  your contributions, or whether you do need to make changes, in order to secure the retirement that is right for you.

Take Back Control of Your Pension

Speaking to an expert can give you a much clearer picture of your pensions, and how your retirement might look. Avoid unnecessary worry and contact our experienced pension advice team: call 02922 671 957 or request a callback today.