The Pensions Ombudsman (PO) has found in favour of an employee where an employer failed to make contributions on behalf of the employee on time under a salary sacrifice arrangement.
The employee, Mr Smyth, was a member of the Woolf Engineering Pension Scheme (the Scheme). He had entered into a salary sacrifice arrangement with his employer, Woolf Engineering Limited (Woolf), and gave up part of his salary in return for a corresponding contribution by Woolf to the Scheme (contributions which Woolf on various occasions failed to make, citing cash flow problems).
Interestingly, Woolf stated that it had received advice which said it did not have to make the contributions – even though the legislation imposes strict time limits for the payment of contributions to a defined contribution scheme. The basis for Woolf's argument (though not entirely clear from the PO's decision) seems to be that the contributions made under the salary sacrifice arrangement on behalf of Mr Smyth were employer, rather than employee, contributions and therefore not subject to such strict statutory time limits.
However, the PO had no sympathy with this line of reasoning. It made clear that Woolf could not reduce Mr Smyth's pay under the salary sacrifice arrangement and then not pay a corresponding contribution into the Scheme; this was breach of a specific agreement made between the employee and employer. Even if characterised as an employer contribution by reason of the salary sacrifice arrangement there were still statutory time limits that Woolf should have complied with when making the contributions.
The PO held that Woolf was required to put Mr Smyth back in the position he would have been had all the contributions been paid without undue delay and, in addition, pay Mr Woolf £250 for distress and inconvenience caused. The case shows that the PO will have no sympathy for an attempt to avoid statutory time limits for the payment of members' contributions even if, technically, they fall to be an employer contribution by reason of a salary sacrifice arrangement.