Employers are facing a uniquely challenging situation as they seek to position their businesses to withstand the effects of the coronavirus outbreak.
Thoughts inevitably turn to employee benefits offerings, and in this time of crisis, as benefits specialists, we are here to support employers in making key decisions about their arrangements. Here we provide further information about some of the key benefits considerations for employers.
While lifestyle pension funds prove their worth, some employees may still need to re-think their plans…
Let’s start with some good news, as it hasn’t exactly been overflowing during these extraordinary times.
The recent market crashes have been something of an advert for default pension funds that have lifestyling attached to them, many of which have proved highly resilient in protecting their members who are close to their chosen retirement age.
Those nearing retirement will have benefited from de-risking as they approach their elected retirement date, as having capital progressively transferred from equities into lower-risk asset types will have provided valuable cushioning from market volatility.
Nevertheless, portfolios should still improve with time, and those who were planning to retire soon could well benefit from a rethink.
Even if an employee’s pension pot has weathered the storm well so far, the Bank of England’s emergency interest rate cut to 0.1% is likely to have an adverse impact on annuity rates. So, anyone intending to buy an annuity could be locked into lower income levels for the rest of their lives.
It is, of course, no longer necessary for those about to retire to purchase an annuity, thanks to the pensions freedoms introduced in 2015 – which make it possible for the over-55s to withdraw capital from their pension. But, once again, caution is needed.
The facility is not only attractive to retirees. It can also be used by those wanting to reduce their hours and top up their salary. But taking money out of a pension now will only crystallise any losses and make it much harder for the fund to make up for those losses through future growth.
It is also important that those already withdrawing from their pensions don’t do so at a level above the fund’s ‘natural yield’. If this falls below what is needed then a slight postponement to existing plans may be in order. Even just a small delay until circumstances have improved could make all the difference in the long run.
Employees need to be on their guard with a widely reported increase in scams…
In addition to making those most susceptible to current events aware of such issues, employers should be warning employees about the very real risk of pension scams in the current environment.
The instability of financial markets – or, indeed, of their own company – might result in some employees looking to transfer their pension, and this could make them targets for scammers attempting to lure them to ‘safe havens.’
Stay abreast of rapidly changing legislation and its impact on benefits…
Because the goal posts have a tendency to shift rapidly during this crisis, it is also important to keep an eye out for the latest guidance issued by The Pensions Regulator (TPR) – which we will be regularly keeping clients up to date with.
TPR is closely monitoring the COVID-19 situation, and working collaboratively with government, regulators and other bodies to assess the most immediate risk to pension schemes. But, at the time of writing, it is advising that employers need to continue contributing to pension schemes.
Further updates from The Pensions Regulator should be posted here.
The TPR advised ‘Our understanding is that, as the Coronavirus Job Retention Scheme (CJRS) grant is a payment to the employer to enable them to continue to pay 80% of wages to furloughed employees, pension contributions would continue to be paid, just based on the lower salaries.
The same would apply to salary sacrifice schemes where the amount sacrificed is usually expressed as a % of pay. The sacrificed amount would therefore just be based on the lower salary.’
There has also been an announcement from the DWP on some additional measures within the previously announced Coronavirus Job Retention Scheme to aid employers in making the Auto Enrolment minimum pension contributions.
As you are aware the Coronavirus Job Retention Scheme is intended to support businesses and their employees by covering up to 80% of the costs of employment up to an overall cap of £2,805 per employee.
That includes wages, plus employer’s National Insurance Contributions and the minimum employer pension contribution of 3% of qualifying wages required under automatic enrolment. This government grant applies in respect of employees that the employer chooses to ‘furlough’ – a temporary leave of absence as an alternative to redundancy.
However, any employers who feel they cannot pay their contributions, or who have other immediate concerns about their scheme or its administration should contact The Pensions Regulator as soon as possible.
Please do not hesitate to contact us if you would like to discuss your own scheme and contributions.
Some additional considerations for group risk benefits…
We are finding fewer issues so far on the group risk side, but there are still some points that employers need to be aware of.
Where you are paying your premiums annually it is normally possible to switch to paying monthly. This may help your cash flow. There is normally a small increase in the premiums if you pay monthly. If you would like to consider this please contact your adviser to discuss the options.
You will also need to be conscious of the situation and amount of cover under your group risk benefits that furloughed employees may have due to their reduced salary/earnings.
With regards to group risk benefits such as Group Life – as a general rule, providers are saying that they will consider, for employees on temporarily reduced earnings, basing the risk benefits on pre-reduction earnings, subject to conditions, including always that the member remains employed, and that data submitted and premiums are based on the pre-reduction salary.
However, they would need to agree in each individual case. This may change.
Until such time as we have firm guidelines from the insurer individual cases should be referred to the insurer with relevant details – number of employees affected, period of reduced earnings, and size of reduction.
Don’t forget valuable extras provided by group risk and health care providers…
Employee assistance programmes (EAPs) can’t provide specific advice on the virus but it should be highlighted that they can still provide counselling for stress and anxiety, even if it is resulting directly from the current crisis. So, their availability could have a huge role to play for many employees.
EAPs are often provided as part of your Group Life, Group Income Protection and Health Cash Plan schemes.
If you would like to know what is available as part of your current benefits package please do not hesitate to contact your adviser.
Some group risk providers are also now offering useful virtual health apps providing mental health support and the ability to access GPs via video link to perhaps take some of the strain from the NHS in getting appointments for non COVID-19 related conditions. But different providers can offer very different features, so employers need to establish what their own particular schemes have and to communicate this information to employees.
We are supporting many of our clients at the moment to provide support and reassurance to their employees during this difficult time, so if there is anything that we can do to help you, or your colleagues please don’t hesitate to ask.
Content correct at time of writing and is intended for general information only and should not be construed as advice.