Money jar with pension label.

Willow Financial Solutions’ independent financial adviser Becky Hammonds looks at the impact of furlough on pensions.

As of March 15, 2021, approximately 11.4 million jobs, from 1.3 million different employers were furloughed or part-time furloughed in the United Kingdom as part of the Government’s job retention scheme.

So, what is the Government doing to protect the pensions of furloughed staff?

The Government is covering 80 per cent of salaries up to £2,500 a month – equivalent to the UK average wage of £30,000 a year – until the end of September.

Its Job Retention Scheme also replaces a 3 per cent employer contribution into staff pension pots on earnings between £520 and £2,500 a month.

The Government will only pay the auto enrolment minimum employer pension contribution, 3 per cent on the 80 per cent or £2,500 per month if lower, of the employee’s regular monthly wage.

No commission, fees or bonuses are included. If the employer pays more than this, the Job Retention Scheme only covers 3 per cent of the furloughed salary as an employer contribution.

Unless you are told otherwise, your own pension contributions and your employer’s contribution will continue at the current percentage but will be based on the amount you are paid while on furlough rather than your normal salary.

Your pension plan may give you the option to reduce or suspend your contributions, or to opt out of the plan altogether.

But think carefully before taking any of these options as they could have a sizeable impact on the value of your pension savings when you come to retire.

The above applies to defined contribution or ‘pot of money’ pensions, where you build up a fund which is invested for retirement at your own risk. These are now prevalent in the private sector.

What if you are in a final salary or ‘defined benefit’ pension?

These are the most generous and safest pensions available because they provide a guaranteed income for life after retirement.

Few staff are expected to be furloughed in the public sector, either because they are key workers or their wages are publicly funded anyway.

The Government’s announcements on furloughing do not specifically mention defined benefit schemes, so it is unclear what impact furloughing will have on them.

Pensions are a complex area and with so much impacting on finances it is worthwhile securing expert, unbiased advice from an independent financial adviser.

For protection, pensions and investment advice contact Becky Hammonds on 07969 269677 or email