Good news for retirement prospects as furlough scheme is extended
Furlough, arranged by the government as part of the Coronavirus Job Retention Scheme, means workers are to have 80 percent of their salaries covered by the Treasury up to £2,500 a month. This scheme has been extended to October, as part of a new announcement by the Chancellor, Rishi Sunak, and will provide reassurance to those out of work due to the crisis. However, the extension of the scheme could also prove good news for pension savers looking to secure their retirement prospects.
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While furloughed staff have been forced to take somewhat of a hit to their workplace pensions, due to salary reductions from furlough, those planning for retirement are still protected.
Although it was speculated the salary percentage covered by the government could reduce, Mr Sunak has confirmed the 80 percent amount will continue.
Those who are furloughed have been encouraged to continue to make workplace pension contributions during this time if they can afford to do so.
If an employee does not pay the minimum five percent workplace contribution amount, they could stand to lose out of the three percent from their employer.
This three percent is currently being provided by the government instead of employers as a result of furlough agreements.
By failing to put money into a workplace pension, savers could be damaging their chances of an easier retirement.
However, the extension of the furlough scheme has proved pleasing to pension advisors.
Steven Cameron, Pensions Director at Aegon, stated the extension of the scheme provided valuable reassurance.
He said: “The 7.5 million employees who have been furloughed and their 1 million employers will be hugely relieved to hear that Rishi Sunak is extending the scheme until the end of October, with them receiving 80 percent of previous salary capped at £2,500 a month.
“Equally, many employers and employees will be pleased to hear that from August, new flexibilities will allow part time furloughing with employers supplementing Government payments so individuals continue to receive the current 80 percent.
“This should also be good news for the retirement prospects of furloughed employees. Employers can currently claim employer minimum auto-enrolment pension contributions for furloughed employees on their reduced furloughed salaries.
“We expect this to continue, so provided employees don’t opt out of workplace pensions, they will still benefit from an employer contribution.
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“While during this crisis it is all too easy to focus solely on today, we hope the ongoing Government support will avoid damaging individuals’ long term retirement prospects.”
There are exceptions to the rule on pension contributions, so Britons should also be aware of the individual circumstances and approach of their business.
Anyone above the age of 22 who earns more than £10,000 a year is automatically enrolled into a workplace pension scheme.
This means a slice of their salary is immediately deducted and placed into a pension arrangement of their employers choice.
These rules do not apply to the self-employed, and can vary dependent on whether a worker is on a defined benefit pension scheme or not.
Furloughed workers can choose to opt out of pension contributions if in a difficult financial situation, or reduce the amount they provide.
Pensions have become uncertain during this time as a result of stock market volatility, however, those who are saving into a final salary scheme will not be affected by these movements.
According to the Pensions and Lifetime Savings Association, defined benefit pensions are protected by the Pension Protection Fund, and therefore safe, even if an employer is affected by the crisis.
The organisation states: “In the majority of cases, the best action is to stay the course with your workplace pension. Past experience suggests that share and other asset prices will recover over time.”
The Pension Advisory Service also offers help to those who are planning for their future retirement, and can provide assistance with arrangements during this time.
It urges savers not to panic or make rushed decisions, and instead access independent guidance and advice over the phone, through email or online.
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