By Martin Jenkins, Irwin Mitchell's National Head of Pensions.

Manufacturing businesses spent 2020 grappling with the twin monsters – COVID-19 and Brexit – so they may be forgiven for regarding staff pensions as something of a lessor priority. But the legal requirement to provide some form of pension for almost all staff remains.

This article focuses on the pressures staff pension arrangements have come under over the year.

There’s no one type of pension plan for manufacturing business. Studies identify that newer manufacturing businesses typically adopt the simplest form of pension model. This is providing something close to the statutory minimum required pension contributions under the auto-enrolment programme (Pensions Act 2008). Most usually, this is provided via an external “master trust”.

These vehicles have the advantage for employers that the pension plan deals with the administration. It avoids the need for the business to have its own pension arrangement. Alongside this, however, is lack of control of a plan typically covering many thousands of employer businesses.

Ultimately, it’s still the employer’s statutory responsibility to ensure compliance. For plans like this, the experience of 2020 has seen a big jump in staff seeking to opt out. A recent survey showed an 11% increase in staff seeking to reduce pension contributions.

In addition, the Job Retention Scheme has brought additional complexity to maintaining contributions. Broadly, the objective is that pension contributions should continue based on the furloughed salary. The bureaucracy on this has been a challenge for many employers.

Interestingly, staff retaining pension had a greater focus on whether funds were invested in an environmentally and socially responsible manner. ESG – environmental, social and governance considerations were a key focus for pension investors – even at cost of lower returns.

Also on pensions, for much longer established manufacturing businesses, there may be some legacy defined benefit (salary-related) pension plans. Almost all of these are now closed to new entrants. In addition, the majority are in some form of close-down mode. The legacy funding’s still significant for businesses with this type of plan however. The level of deficit for employers with such plans increased by £9.6bn in December 2020.

The Pensions Regulator is the statutory body responsible for work place pensions. It’s tried to adopt a lighter touch and sympathetic approach given the challenges of 2020. For example, suspension of employer contributions to defined benefit plans has been entertained as a temporary measure. The auto-enrolment employer contribution obligations continue however.

Hopefully 2021 will see an improved business climate. Getting better control of compliance and tackling issues such as ESG might then come into sharper focus.