The government's furlough scheme has reduced auto-enrolment (AE) pension contributions by 25% - a fifth more than the 20% wage cut, analysis by Now Pensions shows.
Under the , which was introduced in March to keep workers in employment during the coronavirus crisis, the government will cover 80% of staff salaries up to £2,500. The government also agreed to cover that would be due on the 80% pay.
However, due to a quirk in how pension contributions are paid, the first £120 of weekly pay doesn't count for pensions, which means the effect of furlough pay has hit pension savings even harder than you might have anticipated.
Here Which? looks at how much your pension pay may have been reduced by and whether you should boost your savings.
The UK pensions system includes quirk called 'qualifying earnings', which is a band used to calculate pension contributions for AE.
In 2020-21 qualifying earnings between £6,240 and £50,000 are used to calculate pension contributions from you and your employer.
This is either at the minimum contribution level set by the government (3% from your employer and 5% from you) or your employer can set higher percentages if they want to.
In other words, the first £6,240 of your annual earnings isn't included in the calculation for pension contributions.
While this is the case for all members of occupational DC schemes operating under AE, the reduction will be even larger for furloughed workers.
In pounds and pence, a worker that was earning £400 per week before furlough would have received £8.40 in pension contribution from their employer, with the first £120 not counting for pensions. But under furlough pay, this falls to just £6, a reduction of more than a quarter.
In addition, a further quarter of a million people have been forced into the 'net pay anomaly band', and could be losing out on up to £64 in tax relief every year because of the way in which their contributions are calculated.
Those impacted by the anomaly are members of net pay schemes, which means contributions are taken from your gross pay (before your wages are taxed).
Tax relief for this group is only available where the pension scheme operates on a relief-at-source basis, meaning your contributions are taken from your net pay (after your wages are taxed).
One way to help counter the impact of the reduced amount going into your pension savings is to boost your own contributions.
However, that might be hard to do right now if you are already struggling with reduced furlough pay.
To help you decide how much to contribute, you should look at the kind of retirement you want and whether that's achievable for you.
If your pay has been affected by coronavirus, or you simply want to cut down on costs during this time, you can opt out of paying into your pension.
However, saving for retirement is really important, so you should only really be doing this if you need the money right now to pay essential costs.
Opting out involves getting an opt-out form from your pension provider or doing so via an online account. You can get contact details of the pension company from your employer. If the form is completed and returned to your employer within one month of being automatically enrolled, any money you have paid into the pension will be refunded.
Employers will be required to resume payments of the 3% minimum AE pension contributions from 1 August when the government will begin phasing in a shared cost arrangement with employers. Staff may still be furloughed until the end of October when the scheme will come to an end.
If you are made redundant and are in an occupational scheme, you have to stop paying into it and have the option to either:
You might be allowed to transfer your fund to a salary-related scheme with a new employer, but you'll need to check if they will allow that. You should also find out how much the transfer will cost to see if it's worth your while.
Rises or falls in the stock market affect how much is in your overall pension pot, too.
For example, if you have a DC pension - whether private or through work - your savings have probably also been hit quite hard in the short term.