Mark Ormston: Key considerations to introducing a salary sacrifice pension scheme

When introducing a salary sacrifice pension scheme, early engagement with payroll is key, as it is vital to involve them as soon as possible in the discussions. An employer may discover the systems or software currently being used have certain limitations or missing functionality to meet desired requirements.

Employers should consider any additional payroll processes they may wish to implement. For example, they might wish to complete periodic checks, say, once a quarter, to ensure no one has fallen below minimum wage.

They should also think about some automatic opt-out policies for the salary sacrifice scheme, such as for any individuals who go on long-term leave during a career break or maternity leave. Automatically switching these individuals into a different pension offering could save on having to do any manual corrections later down the line.

They should ensure they have budgeted for any changes to payroll processes within their project plan, both in terms of time and money. Simply put, fail to prepare payroll policies and processes at your peril.

Be clear on where the National Insurance (NI) saving is going. If the idea behind offering a salary sacrifice pension is for it to be part of the overall employee reward package, some employees may fairly ask “what is my employer doing with my NI savings?”. It’s likely going towards other benefits such as financial education or pensions advice.

However, wherever it’s going it should be clearly shown and communicated, allowing the employee to see the value of the employer’s NI savings as part of their own total reward package.

Perhaps reconsider the name salary sacrifice. Like many pension terms, salary sacrifice doesn’t really sound very appealing. Some organisations are using terms such as salary exchange instead, which might help make it sound a little more interesting.

Mark Ormston is chair of the Pensions Administration Standards Association (PASA) Industry Policy Committee