Hundreds of companies to stop paying pension top-ups during coronavirus crisis
UP to 500 companies are expected to stop paying pension top-ups on employees' retirement funds during the coronavirus crisis, experts have warned.
The total top-up contribution from employers will be slashed by £500million, which could leave workers out of pocket when they come to retire.
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The current auto-enrolment scheme requires employees to pay in a minimum of 5 per cent of their salary into a pension scheme while employers deposit 3 per cent on top.
These are just the minimum requirements and staff can choose to increase the amount they pay in, boosting their employer's contributions at the same time.
Regulators are currently allowing temporary suspensions of the schemes to help businesses stay afloat during the outbreak of the pandemic.
The emergency measures allow firms to put off paying into the schemes for up to three months even though employees continue to pay in.
What is pension auto-enrolment and how does it work?
HERE'S what you need to know:
- What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
- When does auto-enrolment apply?
You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
– You aren’t already in a qualifying workplace scheme
– You are aged at least 22
– You are below state pension age
– You earn more than £10,000 a year in 2019/20
– You work in the UK
- How much do I contribute?
There are minimum contributions that you and your employer must pay.
Minimum contributions are being gradually increased over time.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
From April 2019, a minimum of 8 per cent must be paid into the pension, with you contributing 5 per cent and the employer paying at least 3 per cent.
- What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes. You can still opt out of individual schemes if you want.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Consultancy firm Lane Clark & Peacock (LCP) estimates that more than 500 businesses will take advantage of the break, which is designed to give them short-term breathing space.
Debenhams has already missed one month of pension payments while Sir Philip Green's Arcadia empire is planning on temporary pause to the scheme.
The country is already facing a pensions crisis with many funds having huge shortfalls, which experts fear will leave retirees without enough cash to live off.
Employers are supposed to be making extra emergency contributions to make sure that this doesn't happen but now there are fears that a break from payments could make the situation worse.
Jill Ampleford, partner at LCP said: "The ability to agree with trustees a delay in making pension contributions will help them to weather the present storm and continue their support to the scheme in the long-term.
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"But it will be vital to get things back on track once the crisis is over so that a realistic plan is put in place to deal with the shortfall in the pension scheme, particularly as this could have materially increased due to changes in financial markets".
David Fairs from the The Pensions Regulator said: "We are clear that the best support for a pension scheme is a strong employer.
"So it is vital that we support businesses and trustees through this crisis while balancing the risks to members.
"In the worst case scenario, where a business does sadly fail, members of defined benefit schemes can be reassured that the Pension Protection Fund is ready to support them."
Workers who have been furloughed will still get their employer's pension contributions paid for by the government under the Coronavirus Jobs Retention Scheme.
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Pensions savers were given a boost to how much they can save each year and still earn tax relief on under plans announced in the Budget.
Retirees have also seen their income increased this month as the state pension has risen by 3.9 per cent.
We've also put together a guide to how saving an extra 1 per cent of your salary now can boost your pension pot by 25 per cent.