HMRC says yes to salary sacrifice through auto-enrolment

HMRC has issued guidance that confirms that salary sacrifice pension schemes will be able to meet the automatic enrolment requirements arriving this year.

Previously HMRC required that employees entering into salary sacrifice arrangement for pension contributions could not easily revert to their higher salary.  This was generally taken to mean that employees could not opt out within 12 months, unless due to a lifestyle change.  If they did so all tax and NI benefits could be withdrawn.  This conflicted with auto-enrolment regulations which permit automatically enrolled individuals to opt out as soon as they have joined their pension.

HMRC has resolved this matter by adding pension contributions to the list of salary sacrifice schemes which allow opting out at any time. Pension contributions now sit alongside childcare vouchers, the cycle to work scheme, and the workplace parking scheme in enjoying this level of flexibility.

Tom McPhail, head of pensions research says: “Salary sacrifice arrangements for pensions have just been made more flexible, and can now happily comply with auto-enrolment regulations arriving from this year. Employers who don’t currently use salary sacrifice for their pension schemes should seriously consider doing so, because the National Insurance savings are considerable, both for them and their employees.”