Salary sacrifice queries

MoneySavingUser

1) Does anyone have data on what proportion of employers contribute the 13.8% NIC saving into their employees pension plans?


2) If an employer states that they are keeping the saving to cover administrative costs - what are these costs likely to be:

a) Initial setup costs - getting all the documentation in place
b) Initial costs surrounding changing the settings in the payroll software to treat the contribution as a salary sacrifice contribution
c) Any initial costs to do with the pension provider

After the above - are there likely to be any ongoing costs for the employer in respect of existing employees?


3) I understand that in the past you had to commit to salary sacrifice for 12 months (unless a lifestyle event occurred) but this was relaxed when auto-enrolment came in because this would be at odds with the statutory right to opt out of a pension scheme - however it seems that the Scottish Widows form for entering into salary sacrifice says you have to commit for 12 months unless a lifestyle event occurs - is this just because they haven't updated their forms?

Dead_keen

1. In my experience, very few.
2. SMP recovery, protecting NMW for some employers (i.e. not being able to take the full sacrifice). There can also be a cost associated with more people joining the pension scheme (e.g. because of publicity, e'ee's NIC saving and any top up).
3. No, you have misunderstood the tax position. While there is nothing to say it needs to be 12 months, the right to go back to your pre-sacrifice salary immediately would mean that the sacrifice was not effective.

atush

Given you are getting over 12% savings thru not paying your own Nics, i'd not be too peed off if your employer is keeping his.

Obv, it would be nice of they paid some of it into your pension pot, but given most employers dont bother with SS at all, i'd take what I could get, while the getting is good.

jamesd

MoneySavingUser wrote: »

1) Does anyone have data on what proportion of employers contribute the 13.8% NIC saving into their employees pension plans?

Wide variation, no data, though all of mine have passed on to employees either all or half of the employee NI.

MoneySavingUser wrote: »

2) If an employer states that they are keeping the saving to cover administrative costs - what are these costs likely to be

The saved NI can be used to pay for other benefits, like life insurance, as well as the whole cost of the benefits program. It's rather unlikely that my own employer really spends on me the amount of NI they are saving on my own pension contributions, which is over £2k a year. Instead I'm in effect subsidising other employees.

MoneySavingUser wrote: »

3) I understand that in the past you had to commit to salary sacrifice for 12 months (unless a lifestyle event occurred) but this was relaxed when auto-enrolment came in because this would be at odds with the statutory right to opt out of a pension scheme - however it seems that the Scottish Widows form for entering into salary sacrifice says you have to commit for 12 months unless a lifestyle event occurs - is this just because they haven't updated their forms?

It's still common for salary sacrifice setups to give the old description and not mention that the rules changed. This can reduce the work for the employer, one reason my own employer used to do this. More recently an online form has been introduced that allows a pension change to be requested at any time in accordance with the current rules; before this they would accept emailed changes but the official description didn't mention it, to discourage requests and the work they involved.

It's probably just an old form at SW because they do not have a choice so far as opting out goes. But they may choose not to allow changes other than opting out if they want to do that, even though the law allows them to accept the changes.

Dead_keen wrote: »

3. No, you have misunderstood the tax position. While there is nothing to say it needs to be 12 months, the right to go back to your pre-sacrifice salary immediately would mean that the sacrifice was not effective.

The original post was correct since HMRC changed its position in the summer of 2012.

It is a mandatory requirement of pension auto-enrolment law that employees are able to opt out at any time. It's also mandatory to refund contributions already deducted if an employee opts out just after being automatically enrolled. The old HMRC rules requiring a life event would not have allowed this, banning the use of salary sacrifice in auto-enrolment pension schemes. So HMRC changed the rules and it is now possible to change pension contributions at any time without any need for a life event:

"due to the advent of auto enrolment in October 2012 and its correlation with salary sacrifice rules, HMRC amended their guidance to remove the 12 month requirement where sacrifice was set up for employer contributions to a registered pension scheme"

The life event constraint still applies to other parts of a salary sacrifice setup.