In this article, we focus on the results of one of the questions posed in our recent Pensions Survey relating to the payment of employer pension contributions during the crisis and assess if the Temporary Wage Subsidy Scheme will have an impact on pension schemes.
The Employer Contribution
Survey Question: Have employer pension contributions been reduced or suspended to your pension scheme as a result of the COVID-19 pandemic?
Three possible answers to this question were provided and respondents could choose one, they were:
- Possibly before year end
80% of respondents stated that no reduction or suspension had been put in place for their schemes, with 15% answering yes and 5% of respondents feeling that this might be necessary for their scheme before the year end.
The Impact of the Temporary Wage Subsidy Scheme?
The Temporary Wage Subsidy Scheme (TWSS) was put in place on 26 March 2020 for impacted businesses that could show a 25% expected decrease in turnover from 14 March to 30 June 2020. There is no doubt that the TWSS provided welcome relief for many employers which, were it not for its introduction, may have had to give serious consideration to a suspension of its pension contribution amongst other measures. However, there may be a bias at work in the survey. Many of the survey respondents are likely to be involved with businesses that may not have experienced quite the same fall in commercial activity as smaller retailers or companies operating in the services sector, for instance.
Another possible reason for the survey result here is the fact that many employers may have yet to obtain professional advice on a potential contribution suspension. While the Revenue TWSS FAQ confirms that scheme approval will not be withdrawn where an employer chooses to suspend its contributions, there are a range of other factors that must be looked at before a suspension of employer pension contributions can be considered.
In its April 2020 COVID-19 update, the Pensions Authority was at pains to emphasise the factors that employers need to consider before agreeing to a suspension of pension contributions, it urged employers to familiarise themselves with:
- The scheme rules, in particular in relation to contribution cessation or reduction of contributions.
- Those provisions of employment contracts relating to pension contributions.
- The employer obligation under section 58A of the Pensions Act.
- The impact on death in service benefits of any suspension.
- The possible impact on insured defined contribution schemes if regular contributions cease.
Where a suspension of the employer contribution is being considered it is crucial that legal advice is obtained to understand any limitations on an employer’s discretion to do so under its scheme’s governing documentation. Employers must also be apprised of the powers of their scheme trustees and will need to obtain advice on contractual arrangements with employees to ensure that a breach of contract will not occur where a contribution suspension proceeds.
The Employee Contribution
Revenue has confirmed that any subsidy payment made to employees should not be utilised to pay pension contributions. However, there is nothing that prevents an employee from making a pension contribution and claiming the tax relief on it from 2020. Revenue’s TWSS FAQ states:
“It is open to an employee to elect to make a “non-ordinary” or “special” contribution to her/his pension scheme before their return filing date for the 2020 tax year.”
Though many businesses are eagerly awaiting the phased lifting of restrictions and a return to some semblance of commercial normality, particular attention should be paid to pension schemes at this juncture, especially in the case of defined benefit schemes where employers bear the funding risk. Further difficult decisions lie ahead for employers that are currently availing of the TWSS as the subsidy scheme has a limited lifespan and the time line for economic recovery is uncertain.
For expert guidance on navigating a proposed contribution suspension or other pension issues presented by the COVID-19 crisis, contact a member of our award winning Pensions team.
The content of this page is provided for information purposes only and does not constitute legal or other advice