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.