Many employers offer their employees the opportunity to make pension contributions by way of salary sacrifice arrangements. This saves both the employer and the employee National Insurance Contributions. An unresolved question was whether salary sacrifice arrangements were compatible with the auto-enrolment of employees into a pension scheme by their employer.

HMRC requires a variation of the individual’s employment contract. To be effective, the salary sacrifice arrangement had to be in place for a minimum 12 month period. However to comply with auto-enrolment regulations, an employer has to allow employees to opt out and opt back in to its pension scheme at will (with no minimum 12 month requirement). The concern was that this could jeopardise the salary sacrifice arrangements for all concerned (not just those who opted in/out).

Technical information

For a copy of HMRC’s revised Q&As on salary sacrifice go to: http://www.hmrc.gov.uk/ specialist/sal-sac-question-and-answers.htm