In May 2020, the government announced key changes to the CJRS. What are the changes, and what is the impact on pension contributions?

Since the introduction of the Coronavirus Job Retention Scheme (CJRS) in March 2020, if an employer is claiming a grant towards employees' salaries, it has also been able to claim employer pension contributions based on furloughed pay, but limited to the statutory minimum auto-enrolment amount of 3% of qualifying earnings. 

We have covered this in our previous briefing notes that can be found in our Coronavirus Resource Centre.

In May 2020, the government announced key changes to the CJRS:

1. Part-time return to work

From 1 July, flexible furloughing will be introduced, enabling furloughed employees to return to work on a part-time basis. Employers will need to pay the wages, employer national insurance contributions and pension contributions in respect of the hours worked, and will be able to continue to claim the CJRS grant for the hours not worked. The minimum period for a claim will be one week instead of the current three week minimum. More detail can be found in the government’s CJRS guidance page here.

2. Furlough pay cost sharing

The furlough pay arrangements will continue through to October with furlough pay capped at 80% (up to £2,500). However, from 1 August, the employer national insurance and pension contribution element of the grant ceases with the employer responsible for the full extent of their contributions. Then, from 1 September, the government will also require the employer to meet a portion of the employees’ furlough pay as follows:

For September the CJRS will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500.

For October the CJRS will pay 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Employers will top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500.

3. Confirmation of record keeping requirements

Alongside the update to the furlough scheme, HM Revenue and Customs (HMRC) also confirmed that employers must keep a written record of the agreed flexible furlough working arrangements for at least five years. In addition, records of all claims and calculations must be kept for at least six years and should include amounts claimed and the claim periods for each employee, calculations used for the claims and the usual and actual hours worked by flexibly furloughed employees.This highlights the need for employers to ensure they are implementing the furlough scheme, including pension contributions, correctly.

The immediate concern for most employers will of course be item 2, cost sharing, which will see them responsible for covering the full cost of pension contributions. The illustrations below set out how we believe this will work in practice. Please also refer to the government guidance on calculating furlough pay. All examples are based on the rules applicable for September 2020 and do not take into account any flexible furlough arrangements.

Example 1 – operating salary sacrifice

• Pensionable pay is basic salary

• Employer contribution is 5% of pensionable pay

• Employee has agreed to sacrifice 5% of pensionable pay

Example 2 – not operating salary sacrifice

• Pensionable pay is basic salary

• Employer contribution is 5% of pensionable pay

• Employee contribution is 5% of pensionable pay

This note is based on Punter Southall Aspire's understanding of guidance provided by:

• The government guidance on CJRS, last updated as at 12 June 2020
• TPR’s guidance on DC pension contributions, last updated as at 15 June 2020
• TPR’s technical guidance for large employers

If you would like any assistance with your furlough arrangement please contact us.