Our world has turned upside down over just a couple of weeks, and we’re now looking (mostly from indoors) at what could be a new norm, at least for a few months.

Employers have some very challenging decisions to make around protecting valuable employees, whilst (in some cases) not excessively damaging their underlying businesses in the long term. Different industries have different questions to answer – and I’ve looked from a pension benefit perspective at a few of these below. 

How can we afford to not let people go? 

The government has introduced an 80% grant for salaries of employees who have been “furloughed”. This will be a huge help, but will only cover a minimum level of pension contributions. This raises several associated pension policy decisions, such as what pension contributions to provide to furloughed employees (and those who volunteer for the NHS), bearing in mind that you may need to make similar decisions for employees in other affected countries. However, the government’s support may still not be enough for some extremely affected businesses, and further support or cost savings could be needed to keep businesses going. 

Some companies are looking at their pension offering for all employees and whether temporary (or more permanent) reductions can be made. Consulting on contributions rates, as well as closure of any still open defined benefit schemes, are obvious cash-saving options, although consultation timescales may mean it’s a few months before any savings can be realised. However, depending on your specific circumstances, there may potentially be relatively quick fixes, such as introducing a new lower contribution rate tier (which would also allow employees to increase their take home pay) or reminding employees of existing lower tiers. Potential cost savings would need to be carefully considered alongside the impact on future retirement pots – as the current crisis has demonstrated the importance of people saving for the future. 

If employees do leave pension plans, it’s important to consider whether this means they also cease life cover as sometimes these are intertwined. 

It may also be possible to reduce/defer any contributions to defined benefit schemes (even where they are closed to future accrual), and Steven Taylor looks at the Pensions Regulator’s emergency guidance covering this.  

I can’t hire fast enough! 

Over the past few weeks some companies have been overwhelmed by increased demand for their services and  are looking to scale up quickly.

If you’re onboarding an unusual number of new employees in a short time period, you should check that the pension benefits you are offering are fit for purpose, and that your payroll and IT processes are ready for the changes. At minimum, auto-enrolment requirements need to be met (in our experience it is a bit trickier if you have several types of contracts about), and that any life assurance benefits are in place in time for the additional workforce starting. In certain cases, increased membership of the pension scheme could bring the ability to negotiate lower charges, which will benefit the whole workforce.

How do I help employees get through the next few months?

I expect most individuals will appreciate any help you can provide. Being there for your employees during these uncertain times could really help strengthen your employee relations, brand name and reputation. With this in mind, I have set out below a few thoughts as to how you might help your employees: 

1. Benefits in the event of sickness or death make a big difference. Review your absence policies to ensure that sick, furloughed and volunteering employees are still covered by life assurance and ill-health benefits as expected. 
2. Your employees will be looking for reassurance amidst all the uncertainty. Some examples of employee questions that we have been helping clients answer over the past few weeks include – “Is my money safe?”, “Will I still be able to retire next year?”, “My pension has halved in the past week – should I take it all out as cash?”. The truth is not as bad as you’d initially expect, so now is the time to get in touch with your employees, ensure they have access to the right information and help them avoid knee-jerk decisions that could potentially make them worse off in the long-term. This is particularly important as pension scammers have already been seen preying on anxious members.  
3. Partial retirement (i.e. drawing pension whilst remaining in employment) is an available option in lots of cases, and sometimes one which members aren’t aware of. Letting people know this is an option might help in some cases to reduce the financial burden for employees whose salaries have been cut due to reduced working hours.  
4. Financial wellbeing has never been more important. Employees may be worried about their finances, and this combined with the potential impact of falling ill will have an impact on mental health and productivity. Something as simple as a website with a few financial tips can make a big difference. My colleague Heidi’s blog provides some top tips for reviewing financial health. 

The sun will still shine on the other side

In the middle of World War II, the Beveridge Report was published. This Report dared to consider what the world would look like after the war and brought about the creation of the NHS. 

We are not coming out of a war, but the post-Covid-19 world will be different to what we knew before. Some companies will have shrunk significantly while some will have grown to have a very different employee population than they did even a month ago. So as the dust settles, it will soon be time to reflect on processes, policies and structures, and think – does this fit my new employee base? Does it also give me a flexible cost and talent base for the next time things change suddenly? If not – perhaps it’s time to re-imagine the possible and plan for the future.

Take a look at our action plan for companies or action plan for trustees of DC schemes to help you understand the impact of Covid-19 on your scheme, members and employees.