HMRC confirms salary sacrifice pension schemes will work for auto-enrolment

HM Revenue and Customs (HMRC) has confirmed that salary sacrifice pension schemes will meet the requirements of auto-enrolment.

Previously employees entering into a 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 it was because of a lifestyle change. If they did so all tax and national insurance (NI) benefits could be withdrawn. According to Hargreaves Lansdown, this conflicted with auto-enrolment regulations, which permit auto-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 the employee to opt out at any time. Pension contributions now enjoy the same flexibility as childcare vouchers, bikes-for-work, and the workplace parking scheme.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “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 that don’t currently use salary sacrifice for their pension schemes should seriously consider doing so, because the NI savings are considerable, both for them and their employees.”

Read more on pensions reform and auto-enrolment