The government has confirmed grants to pay workers’ wages during the coronavirus crisis will also cover employer auto-enrolment (AE) pension contributions.
This forms part of the government’s ‘job retention scheme’ announced last week, in which it agreed to pay 80% of salaries for employees who are asked to stop working but kept on the company payroll – or ‘furloughed’ – during the coronavirus crisis.
The rules – which apply to furloughed staff enrolled into a defined contribution (DC) workplace pension – will see the government pay minimum AE employer contributions worth 3% based on the furloughed salary, which will be capped at £2,500 a month.
How will this impact your pension savings?
The promise to pay 80% of salaries for the workers that are kept on during the crisis is a big commitment from the government.
Given the cost, it had been feared that auto-enrolment contributions would be put on ice.
However, the government’s commitment to pay some of the pension contributions workers are entitled to during the coronavirus pandemic means pension savings can carry on.
The amount you get in your pension normally depends on how much your employer contributes and how much you earn.
With furloughed staff, the contribution will be set at the minimum 3% and capped at the furloughed salary up to the monthly £2,500 limit.
You will still need to pay the 5% contribution to get the government’s contribution. The table below shows how being furloughed could affect someone earning either £30,000 or £50,000 in 2020-21 paying in the AE minimum of 8%.
If your employer contributes above the minimum usually, you could be missing out on a fair bit more.
If you’re in a position where you feel you can add in the extra money yourself, you should tell your employer or pension provider you want to up your contributions.