If you are one of the 9.3 million people in the UK that have been furloughed, you will likely have a multitude of questions you want answers to. There has been a fair amount of confusion surrounding the furlough scheme, and one of the most pressing questions relates to our pensions. 

For more information regarding the status and security of your occupational pension scheme when furloughed, read this guide. 

What happens to my pension when furloughed?

Under guidelines laid out in the government’s Job Retention Scheme, 80% of salaries of up to £2,500 per month will be paid by the government. Unless your employer chooses to top up those 80% furlough payments, you can expect that, like your salary, you may feel the pinch in your workplace pension too. 

3% of employer contributions are covered for now

However, the generosity of the Job Retention Scheme means that the government will also cover employer contributions of 3% into staff pension pots. The government will cover these contributions only for earnings between £520 and £2,500. The 3% amounts to the auto-enrolment minimum and is the absolute most that the government will cover. If an employer normally contributes more then it is up to the employer to top up contributions themselves.

It should be noted that the government will only cover these contributions until 1st August 2020. After 1st August, employers will again be responsible for their pension contributions. 

Did you know? From 1st September 2020, the government will cover 70% of furloughed salaries which will then drop to 60% of furloughed salaries from 1st October 2020. The furlough scheme will then come to an end on 31st October 2020, at which point the government will have decided on its strategy going forward. 

What if my employer’s contributions are usually above the 3% minimum?

If you have been furloughed, you will likely receive employer contributions at a minimum of 3% as previously stated. However, your employer has the option to make up the remainder if their pre-coronavirus contributions were above 3%. 

That said, times are tight. Your employer can choose to reduce their pension contributions to the minimum during the coronavirus crisis and they can do so without the usually regulated consultation period (this still applies to reducing contributions for non-furloughed staff). Without this normal 60-day consultation period, employers can cut back their contributions at essentially a moment’s notice to offset losses.

The reality is that if you’re furloughed, you may have to settle for lower pension contributions than you would normally have. This depends on how close you are to accessing your pension pot, of course. 

I plan on accessing my pension pot in more than 10 years’ time

Given the fluctuating and long-term nature of pension saving, there is plenty of time for your pension value to recover from any damage inflicted by the coronavirus. 

I am closing in on retirement age and plan on accessing my pension pot within 5-10 years

If you want to access your pension pot within the next five years, you may miss out on any potential increases once the market recovers. One option you do have is to take up to 25% from your pot (tax-free), and then leave the rest to potentially recover in time. It’s not an ideal scenario but some choose to do this to tide themselves over in the short to medium term, and it’s better than incurring various tax charges if you were to take out more than 25%. 

Make an informed decision regarding the future of your pension

These are truly difficult times and you need to look out for your own financial situation. As pension claims specialists, we’re available to chat through your options if you feel you may be the victim of a financial scam.

We’ve helped countless people, and by calling 0161 968 0768 we may be able to help you. Alternatively, get in touch with us here. In the meantime, take a look through the following articles from our helpful blog section.