Employee Benefits Pensions

It’s vital that pension member communications are spot on in these uncertain times

As the government starts to taper down and wind up the financial support available via the furlough scheme, many believe more firms will start to take some tough decisions which could make job losses inevitable.

Furloughed staff will have reduced pension pots

When furlough began, the government agreed to protect pensions and individual and employer contributions continued but were based on the furlough amount rather than a normal salary under the traditional payment method. They were also limited to the legal minimums in terms of claims the employer could make. So, unless the employer had to top contributions up – as they would have to with salary exchange, for example, pension contributions during the furlough period could be four-fifths of salary.

At the time of writing, I am not aware of any available data that has looked at how many people have reduced, suspended or even opted out of a pension plan as a result of furlough. Taking any of these options could have a considerable negative impact on the value of pension savings – especially so if they forget to go back to making the pre furlough payments; although the impact will depend on the age of the individual concerned. If an individual wants to stop paying pension contributions while they are furloughed they would need to opt-out of, or leave their pension scheme in the usual way and employers and trustees must think about how they want to explain the consequences of opting out and how they can make sure returning employees go back into the scheme, that’s why pension member communications are so important at this time.

Higher unemployment

This is a worrying time for everyone, especially now employers have to contribute towards the cost of paying furloughed staff’s wages by paying National Insurance and pension contributions, at an average cost of £70 a month. Some analysts worry that NI and pensions are another financial burden for beleaguered businesses and say government should continue their support in order to avoid major unemployment.  Others argue the furlough scheme is too expensive (estimated by the Office for Budget Responsibility to cost £47bn in 2020-21) and in fact, it is simply prolonging the inevitable and supporting jobs that are no longer needed. There is no easy solution.

The Office for Budget Responsibility estimates unemployment could reach 10pc in 2021 – worrying indeed.  Higher unemployment has a negative impact on individuals in the short term of course, but there should also be more discussion about the longer-term implications of unemployment – in particular the negative effect it will have on pension savings and retirement standards. Broadstone is adept at managing efficient and accurate communications to staff around their pension options and this is more important than ever under the current circumstances.

Saving enough for retirement

Before the coronavirus, the introduction of auto-enrolment was welcomed as a very positive step forward for helping people to save for retirement. However, will furlough or even general economic uncertainty have seen people opt-out of this and other pension saving schemes – it’s too early to say. What’s your experience so far?

If you have employees over 55 who have built up a private pension pot, they may be tempted to think about accessing their pension early if they face redundancy. Every case is unique and it’s vital that employees get the right advice, but that employers also make individuals aware of the prevalence of pension scams and what to look out for.

Your company is unique which is why it’s so important that pension member communications meet the needs of your business and your employees. In these unprecedented times, employers owe it to their staff to make sure the current economic uncertainty does not lead them to make decisions they will come to regret in later life.