Covid-19: pensions and benefits Q&A

Investment markets have been volatile as a result of the Coronavirus outbreak and it is difficult to predict the exact shape of...

<big>Covid-19: pensions and benefits Q&A

<big>Our experts answer your key questions

In the past weeks, the Covid-19 pandemic has left all of us dealing with unexpected issues and it’s thrown up many questions too.

With that in mind, we thought it would be useful to share a summary of some of the most frequently asked questions we’re picking up during this challenging time.

What impact is the pandemic having on default investment funds?

Investment markets have been volatile as a result of the Coronavirus outbreak and it is difficult to predict the exact shape of the recovery from this situation.

However, it's important to remember that pension investments are long-term so we would encourage you and your scheme members to read our top tips for dealing with a volatile market (released in 2019).

To read our full view on the pension investment impact of coronavirus, click here.

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How does salary sacrifice work within the Coronavirus Job Retention Scheme (CJRS)?

If an employee is paying pension contributions through salary sacrifice, the employee gives up part of their salary for an additional employer contribution equal to the amount of salary given up. The post-sacrifice salary becomes their contractual entitlement and therefore, under the CJRS, the grant would only cover 80% of the post-sacrifice salary. The grant must be paid in full as furlough pay and cannot be reduced by the salary sacrifice payment.

However, the salary sacrifice agreement is part of the employee’s contract as their inclusion in it took place through a variation in their terms and conditions of employment. Therefore, an employer still has to meet the cost of the additional employer contribution.

Employers where an employee is paying contributions through salary sacrifice are left with two options:

1. the employer continues to pay the employee’s salary sacrifice contributions but cannot reclaim this through the CJRS;

or 2. the employee ceases to participate in salary sacrifice.

In relation to the latter option, employers need to consider their contractual obligations and should take legal advice where necessary.

For further information on this subject, click here to read our Briefing Note on our Coronavirus Resource Centre.

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What are the implications for group protection arrangements?

In relation to Group Life, Income Protection and Critical Illness, some examples of the key questions we’re being asked are:

Will a claim due to coronavirus be paid?
What will the approach to claims be if an employee is furloughed, being paid a reduced salary or working reduced hours?
If any employee is working from home, will they meet any ‘Actively at Work’ (AAW) requirements?
Is coronavirus considered a catastrophic event?
Have the disclosure requirements and cover been amended in relation to business travel?

Insurers will look to Government guidance when reviewing how the crisis affects their products, but it’s important to note that insurers will interpret some of the potential issues differently in line with their own terms and conditions.

Many clients have also asked if there is anything that can be done to assist their cash flow during the crisis. We have supported clients by reaching agreements with providers to help ease cash flow issues - for example by deferring premium payments on dental insurance, whilst retaining cover. Reaching such an agreement depends upon the insurer, the relationship with the client and the size of the scheme. If you require guidance on this or any other matters, please get in touch.

A Briefing Note is also available for further information on the potential impact of Covid-19 on Group Protection and Health Insurance.

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How can the issues be communicated to scheme members?

For trustees of a defined contribution scheme there are steps you should be considering both as part of your governance oversight and, importantly, to support your scheme members. Amongst others we would recommend that you consider communicating with members. A proactive communication may help members with financial stress and support them in making informed decisions. This could prevent them taking a ‘knee jerk’ reaction to the recent market volatility and instigating a fund switch. For more information on coronavirus and occupational pensions, read the full Briefing Note in our Coronavirus Resource Centre.

For employers there are many aspects of pension and benefit provision that will be affected by Covid-19, some of which we’ve covered in more detail in the previous sections of this guide.

If you’re looking to communicate with your employees about these then our expert team will be happy to help - you can read more about what we do here or get in touch directly.

To read about some of the personal finance queries we’ve been helping clients with, click here.

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Thanks for reading

We hope these answers will be of use to you. As always, if there’s anything you’d like to discuss either on these or anything else then please <a href="https://www.psaspire.co.uk/locations"><b>get in touch</a> </b>- we’d be happy to help.