Furlough pay arises under the Coronavirus Job Retention Scheme, which is where an employer may keep an employee on the payroll even though they are unable to operate or have no work for the employee to do because of COVID-19. The employer can pay 80% of the employee’s wages up to a monthly cap of £2,500 and recover these wage costs from HMRC. Employers may top this up above 80%. This is known as being on ‘furlough’. Under the Coronavirus Job Retention Scheme employers were originally able to recover minimum employer pension contributions of 3%. As the employers’ contributions to the LGPS(NI) are generally much higher than this, employers will be unable to recover the shortfall and will have to fund the difference themselves.
On 29 May 2020, the Government announced that, from August 2020, employers will no longer be able to reclaim any pension contributions. The Coronavirus Job Retention Scheme was due to close on 31 October 2020. It was then further extended to December 2020, then to 31 March 2021, then to 30 April 2021 and later extended to 30 September 2021. From 1 July 2021 the level of grant will reduce and employers will have to contribute more towards the cost of their furloughed employees’ wages. Furlough pay is pensionable under the regulations. Employee and employer contributions should be deducted based on the actual pay the furloughed employee receives. Assumed pensionable pay does not apply in these circumstances.
Members will build up CARE pension based on the actual pay received. If the furlough pay is 80% of what the member would normally receive then the pension they will build up will be 80% of what they would normally have built up. The member can choose to buy additional pension to make up for the pension that was ‘lost’. The employer may split the cost of this additional pension purchase with the member but is not obliged to do so. The employer could also choose to award additional pension to the member, based on the pension ‘lost’ due to the pay reduction. Employers may wish to check their policy statements regarding this discretion.
Any pension benefits that a member may have that are final salary benefits (relating to membership before 1 April 2015) are usually calculated on the final year’s pay or the best one of the last three years if an earlier pay is higher. This should prevent the final salary element of a member’s pay being affected by being on furlough.
It is also sometimes possible that where a member’s final salary pay in a continuous period of employment is reduced or restricted the average of any three consecutive years’ pay in the last 10 years may be used if that is higher.
Yes. If furlough pay forms all or part of a member’s pensionable pay it should be used to determine the employee contribution rate on 1 April 2020. It is also possible for an employer to reallocate a member to a different band during the year. If they do so, they must inform the member. Employers may wish to check their policy on allocation to contribution bands. See section 2.2 of the Employers’ Guide for more information on contribution banding.
Assumed Pensionable Pay (APP) is used in the calculation of the death grant and any survivor benefits if a member dies in service. APP is usually calculated using the average pensionable pay the member receives in the three months before the pay period in which they die. If a member receiving reduced furlough pay dies in service, employers should use the provision that allows them to substitute a notional pay figure to reflect the pensionable pay the member would normally have received.