Amending a pension salary sacrifice agreement

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An employee participates in a company's pension salary sacrifice scheme, with the arrangement being for a minimum of 12 months.

If, however, within the twelve month period (say, after 6 months) the company awards the employee a pay rise with the option of taking it as cash remuneration or further employer pension contributions, I presume it is permissible to increase the amount of salary sacrificed/exchanged if everything is properly agreed and documented in advance? 

My thinking is that the employee is not being given the option to take the sacrificed earnings as cash a whenever they like, so such an amendment should be okay...

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By Tax Dragon
06th Feb 2024 14:52

Subject to meeting legal requirements (eg NLW), I see it as entirely a matter for the parties involved. It'd be sensible for the parties to take legal advice in the scenario.

Obvs you can advise on the tax.

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Replying to Tax Dragon:
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By FactChecker
06th Feb 2024 16:25

Agree that the negotiation/decision is entirely a matter for the involved parties, as there doesn't appear to be anything outside of the remuneration package under consideration.

But I'd suggest, as always, breaking it down (for the purposes of that negotiation) into the separate steps - so that everyone is clear as to what's going on.
So, for instance, this starts with 'the award of a pay rise' ... is that meant to change anything other than immediate remuneration (grade/scale or holiday entitlement based on LoS and so on)?
Then a choice is introduced (taking it as cash remuneration or further employer pension contributions) ... which doesn't sound to me like salary sacrifice is being mentioned (just two alternative forms of reward which, as I've hinted, may have other consequences).

So why is one of the options being considered under the guise of salary sacrifice?
Is there something else going on - or merely an unnecessary complication being introduced?

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By the_drookit_dug
06th Feb 2024 16:07

See EIM42767, which notes "It follows that where the contract variation is for 12 months or more then it is accepted that the convertibility of the benefit does not have money’s worth." (https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42767).

Could it be argued that as the additional amount being sacrificed is new earnings, it's not really varying the original salary sacrifice? At any rate, it doesn't seem that the variation is providing the option to convert any benefits back to money's worth.

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By C Graham
08th Feb 2024 18:06

'a pay rise with the option of taking it as cash remuneration or further employer pension contributions'.

Do you mean 'cash' paid as a bonus rather than contractual pay? If salary is increasing - as documented in the agreement then the sal sac will need to reflect the 8%.

The employee could still override the min 5% and make additional payments into their pension ad hoc or take it as a bonus outside of contractual pay.

There can be no 'end date' for salary sacrifice as it is a contractual agreement and is not reversible unless both parties agree. But employees could choose to leave the pension scheme within the 12 months and ask to be opted back in at a later date. The employer can choose not to re-enrol them if they opted out and want to opt back in during the 12 month window but they'd be re-enrolled every 3 years automatically.

I don't quite see from the question what the issue is?

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By AngelAsks
15th May 2024 16:52

The 1 year thing is old - HMRC amended their guidance to remove the 12 month requirement due to the advent of auto enrolment in October 2012 and its correlation with salary sacrifice rules.

Anyhow, the pay rise would constitute as a lifestyle change.

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Replying to AngelAsks:
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By FactChecker
15th May 2024 23:03

I can't think how to phrase this without you potentially seeing it as patronising or offensive ... but can you cite the legislation (or frankly any source) for either of your two extraordinary assertions:

"the pay rise would constitute as a lifestyle change" (for a SalSac scheme)?;
"the advent of auto enrolment .. and its correlation with salary sacrifice rules"?

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