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New rules to simplify salary sacrifice auto enrolment pensions schemes
HMRC has announced changes to the salary sacrifice rules of auto enrolment to avoid penalising employees who choose to opt out of auto enrolment pension schemes.
After protests by pension scheme providers, HMRC has agreed to allow staff to opt out of auto enrolment at any time and to receive a full salary refund, after tax.
Before the changes, opting out of a salary sacrifice scheme outside of agreed upon review periods was not allowed, meaning the employee may miss out on the refund of the salary sacrificed during their time as part of the initiative.
However, employees auto-enrolled through salary sacrifice schemes will not now be held to the arrangement if they then opt out of the pension scheme, but will be entitled to a refund of the wages they sacrificed, after tax and national insurance.
This should go some way to making salary sacrifice and auto enrolment more compatible, making the whole process simpler for businesses and employees.
The move follows months of lobbying by numerous organisations representing the employer community.
Michael Whitfield, chief executive officer at Thomsons Online Benefits, commented that there are lots of "complicated and possibly unwanted" consequences of auto enrolment.
However, he welcomed the HMRC's move, saying he is "delighted" by their actions to avoid panic in the employer community, adding that it is "a victory for common sense".
"We have for a long time lobbied that employees should be able to alter pension contributions, irrespective of whether salary sacrifice is the chosen method of payment, for bona fide reasons outside of lifestyle events to encourage employee engagement," he said.
Mr Whitfield did add, however, that there are many other pension reform debates which still need clarification.
This follows news that less than half of workers currently contribute regularly to a workplace pension scheme, with 19 per cent holding no pension whatsoever, according to research conducted by FriendsLife.
Posted by Editorial Team
April 18th 2012