It has recently been reported that due to the pandemic some employers have ceased to make pension contributions.
The Pensions Authority has acknowledged this is a very difficult time for many employers and any decision to suspend contributions will need to consider the implications of this action for the employer and employees.
It should be noted that there is a difference between employees who are being retained and employees who are being laid off. If an employee is laid off it will usually result in a cessation of the obligation to pay contributions in respect of that employee. Where employees are continuing in service different considerations will apply.
- Does the contract contain specific provisions in relation to contributions?
- Does it allow them to be suspended?
In many cases the contract will be silent on this matter and it is necessary to consider the terms of the trust deed of the scheme. Frequently, this will include a clause which will allow the employee to suspend contributions in certain circumstances. It is rarer to see a clause which allows an employer to do so. Therefore, to ensure this approach is legal it will be necessary for the employer to amend the deed. This in turn will involve engagement with the trustees, as typically an amendment to the deed requires the consent of the trustees. Where independent trustees are involved, they will be focussed on the interests of the members.
Taking a hard line and insisting pension contributions should continue from an employer with no income could however drive the employer into examinership or insolvency and imperil the jobs as well as the pension contributions of the employees.
Assuming the trustee is willing to facilitate this change, the key considerations will be to lessen the impact on the employee both in the short term and in the longer term.
- Will risk benefits such as life cover continue? At what salary level? (Life cover benefits in a pension scheme are frequently expressed as multiples of salary e.g. 4 x salary).
- If salary is temporarily reduced will life cover also be reduced?
- Can an employee continue to make their own contributions or AVCs?
- Can an employee who is due to retire still receive the contributions for the period?
- Will the employer pay the suspended contributions at a future date?
Clearly, the current COVID-19 crisis is a very worrying time for both employers and employees. It forces consideration of options that would in normal circumstances be unthinkable. To minimise the degree of difficulty caused it is important that all relevant points are carefully considered, and the changes made, and their impact is clearly and fully explained to the members.
For further information, please speak to your financial advisor or email email@example.com.
*Please note this content is the view of the author and not of Independent Trustee Company