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.”