TPR guidance on calculating pension contributions where there is a salary sacrifice arrangement for the CJRS

21 April 2020

The Pensions Regulator (TPR) has issued detailed technical guidance, aimed primarily at larger employers, which will assist in understanding the interaction between the calculation of normal pension contributions and pension contributions that can be claimed under the Coronavirus Job Retention Scheme (CJRS). The guidance relates specifically to pension contributions where there is a salary sacrifice arrangement.

The grant available under the CJRS does not alter an employer’s usual pension contribution payment obligations or processes, and when calculating the pension contribution due for a furloughed worker who has a salary sacrifice arrangement for pension contributions in place, contractual obligations and pension scheme rules will continue to apply as normal.

However, as the rules relating to the CJRS stipulate that all of the grant claimed must be paid to a furloughed worker in the form of money, this could potentially mean that, where a salary sacrifice arrangement is in place for pensions, an employer will need to amend its payroll processes to calculate the pension contribution to be paid to the pension scheme under the pension scheme rules.

Salary sacrifice arrangements are contractual agreements between staff members and their employers, where staff agree to forfeit a portion of their salary in return for a benefit, such as a pension contribution, made by the employer. Contracts of employment are amended to reflect any salary sacrifice arrangements.

In salary sacrifice arrangements, pension scheme rules usually mean that the obligation is on the employer to pay the total employee and employer contributions, however, they are calculated. In many cases, the scheme rules will define pensionable pay as the notional pre-sacrifice pay. The amount the staff member sacrifices is paid across to the pension scheme as part of the overall employer contribution, and there is no obligation on the member of staff to contribute.

The amount the individual has agreed to sacrifice for pension may appear on payroll as an employee pension contribution, but it is imperative to remember that the obligation in the pension scheme rules is for the employer to pay the total contribution and under the pension scheme rules there is no requirement on the individual to pay a pension contribution.

CJRS guidance maintains that when calculating 80% of a furloughed worker’s pay, the reference salary to use is the amount after the salary has been sacrificed. All of the grant received must be paid to employees in some form of money, and the pay during the furlough period should be treated as the post-sacrifice pay so no further sacrifice is made on that amount.

There is a clear distinction between what employers can reclaim through the grant and what can be paid in relation to the employee. Any contractual obligations that have been entered into must continue to apply as normal.

If, as a result of contractual arrangement, pay cannot be reduced, employers will need to continue to pay their furloughed workers full pay and calculate pension contributions and the salary sacrifice element as usual on this pay. In these scenarios, a grant can only be claimed under the CJRS to cover the lower of 80% furloughed workers pay or £2,500 per month and the employer’s pension contribution up to the level of the Automatic Enrolment (AE) statutory minimum employer contribution.

The guidance provides five illustrative examples, which discuss a variety of scenarios and are each very technical in nature. It would be advisable to familiarise yourself with the guidance if you operate a salary sacrifice scheme and have placed employees on furlough.

TPR also reiterates previous guidance that COVID-19 is classed as a life event, meaning that the terms of a salary sacrifice arrangement could be changed, as long as the relevant employment contract is update accordingly with the agreement, as a result of coronavirus. However, any changes made to salary sacrifice arrangement from 19 March 2020 will not affect the calculation of the reference wage for the purposes of CJRS, as the calculation is based on the furloughed worker’s last pay period prior to 19 March 2020.


The information in this article is accurate at the time of publication. For all the latest information, news and resources on how the COVID-19 pandemic is affecting payroll professions, visit our Coronavirus hub.