Pensions and coronavirus #2

As we look towards the Easter weekend and ponder the morality of going out to buy non-essential Easter Eggs, we are happy to provide a further pensions ebriefing, which can be read with no such moral dilemmas! The message from the Regulator is still clear.  Despite the ongoing effects and uncertainty of the current crisis, employers and pension funds must continue to do the following; pay benefits, make employer contributions, support savers and be particularly alert for scams. 

All information is correct at the time of going live on 9 April 2020

Coronavirus Job Retention Scheme (furlough leave)

The Government has, for the last two weeks, been putting the meat on the bones on this scheme, which was announced on 20 March.  More of the details can be found in our first ebriefing.  The salient issues relating to pensions are as follows:

• The Government will reimburse employer contributions at the minimum auto-enrolment rate of 3% of qualifying earnings only. This means employers will continue to be responsible for funding the cost of higher employer contributions.  
• Furlough pay is pensionable. Contributions for both employer and employee should be calculated based on the actual pay the furloughed employee receives.     
• Employee contributions will have to be paid over within the normal timescales. It may, however, be possible to agree deferral of employer contributions with your pension fund but this would need to be agreed by the pension fund.
• Furlough pay will affect the pension that is built up in the following ways; for members of CARE based pensions, if the furlough pay is less than their normal pay as their employer chooses not to top up to 100%, then the pension built up will be less. Employees may be able to choose to buy additional “extra” pension to make up for what is lost during the furlough period.  There is not likely to be any obligation on employers to share that cost.  For members of final salary schemes, pensionable pay is usually calculated using the pensionable pay earned either in the year before leaving the scheme or in earlier years if higher.  This should address the effect of reduced furlough pay on these schemes. 
• If a member dies whilst on Furlough, employers should check their scheme rules as to whether there is any provision to substitute a higher pay figure for the three months prior to death. For instance, under the Local Government Pension Scheme regulations, there is a provision which allows for such a substitution if, for whatever reason, the three months’ pay is less than what that member would normally have received. If you have active members in other schemes who are on furlough leave, we would suggest that you liaise promptly with the relevant administrators to establish the position.

Administration and governance

• Continuity in the administration of pension schemes is essential.  Certain members of the financial services sector are considered key workers at this time and we would advise both employers and funds to check whether this applies to any staff involved in pension administration as this might help with continuity.    Ensure that a plan is in place to ensure continuity in paying benefits and processing retirement applications and transfer value requests.  The workforce may be depleted by illness, those self-isolating or those shielding or looking after dependents and it is key that these activities can still be carried out.  Given that most individuals who are still working will be doing so from home, be alert to the cybersecurity issues.  Ensure that sensitive documents are encrypted and/or only downloaded onto safe servers and that all relevant staff are aware of their responsibilities when dealing with sensitive data.
• Key decisions still need to be made, and so it is vital that the governance of schemes can continue virtually and that it has been agreed how this will happen.   Delegation of authority on certain issues should be given so that vital decisions can be made more effectively but with the full authority and in compliance with the governance mechanism.  Again, where virtual meetings are being held, cybersecurity should be monitored, and all meeting attendees made aware of their responsibilities. 

Communication

• Communication with members is key when uncertainty and underlying fear of the future abounds.  Employers and pension funds should be prepared for a huge increase in questions from members and requests for transfer values.   A clear idea of how these queries are going to be “triaged”, investigated and answered is important as is the need to be able to provide quick and accurate transfer values.   In addition, the Pensions Regulator has reiterated the dangers of scams and reminded schemes of their responsibilities to members to protect them.

Investment

• Even those people who have avoided news reports at all costs are aware of the huge economic impact of the pandemic and the corresponding volatility of the stock markets around the world.  Thought must be given to the impact of these volatilities and whether there are alternative investment strategies to be followed with longer-term investments.  Discussions with actuaries and investment advisers should be ongoing and it should be made clear what information is needed from them.  Clearly, where decisions on investments are to be made, funds need to be mindful of the governance implications and arrange virtual meetings where appropriate so as to discuss any such changes.

Further information

Please contact Alice Kinder for further information.

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