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Govt to amend auto-enrolment salary sacrifice guidance

The Government is set to amend automatic enrolment guidelines after concerns were raised about the impact current rules could have on salary sacrifice arrangements.

Under salary sacrifice, an employee can agree to a contractual drop in salary in exchange for an increased employer pension contribution.

However, cancelling a salary sacrifice arrangement is not currently permitted unless it is due to a ‘lifetime event’.

This means if a person is auto-enrolled into a salary sacrifice arrangement and subsequently opts out they may not be entitled to a refund of the salary sacrificed.

Friends Life says HM Revenue & Customs intends to change its rules so employees who are auto-enrolled via salary sacrifice will not be held to the arrangement if they subsequently opt out of the pension scheme.

Instead they will be entitled to a refund of the salary they sacrificed, subject to tax and national insurance.

Friends Life head of corporate benefits marketing Martin Palmer says: “Employers have been telling us that auto-enrolment and salary sacrifice needed to be compatible to make arrangements simpler and more workable for them as they engage with the new pensions legislation.

“The clarification we’ve received from HMRC that salary sacrifice guidance will be changed is great news. It’s also a common sense move that ensures consumers won’t be left out of pocket if they decide not to remain in their employer’s scheme.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Admittedly I’ve not advised in the corporate market for some years, though logic suggests that reducing without consent an employee’s salary, for any reason, cannot be legal. Nor, one would think, could it be legal for an employer to force on an employee a change to his contract of employment to afford the employer such power.

    Even auto-enrolment into a conventional scheme is pushing things a bit. If a scheme represents a good deal, then most employees would join voluntarily without coercion. If most employees would not join voluntarily, the question naturally arises as to why not, and to that question the answer must be pretty self-evident.

    Why hasn’t the present government done a single thing to honour the Conservative party’s pre-election manifesto promise to put right all the damage done to public confidence in saving for retirement inflicted over the past 25 years and to “reignite the UK’s savings culture”?

  2. Good news. If course employer could not just enforce SS with no notice, information of that fact that Auto-Enrolment or Opt-Int etc would be undertaken by Salary Sacrifice would have formed part of the intiial communications on pension reform from the employer.

    However, if an employer does assume an SS scheme, the individual does have a right to choose to withdrawn and pay standard employee contributions.

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