Less than half of SMEs offer salary sacrifice

Less than half of SMEs offer salary sacrifice

Small and medium-sized employers are being prompted to offer pension salary sacrifice to their staff, which cuts the national insurance bill for both employer and worker.

According to recent research of 568 human resources practitioners by the Chartered Institute of Personnel and Development (CIPD) and consultancy firm LCP, only 41 per cent of SMEs offer this benefit, compared with 61 per cent of large and 85 per cent of very large organisations.

Salary sacrifice - whereby an employee agrees to exchange part of their salary in return for a pension contribution from their employer – not only allows workers additional savings in tax and national Insurance contributions, but also benefits the company itself through lower national insurance contributions.

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According to Dipa Mistry Kandola, head of flexible benefit services at LCP, companies are weary of introducing such benefit due to fears that HM Revenue & Customs (HMRC) is going to remove it, or that it is too complicated to implement.

She argued that since the Finance Act 2017, "pension salary sacrifice has been brought into the mainstream and seen as 'acceptable'".

In 2016, chancellor Phillip Hammond first Autumn Statement targeted salary sacrifice schemes, making most of them subject to the same tax as cash income.

Nevertheless, pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars were made exempt from the changes to the salary sacrifice taxation, which came into force this April.

"Prior to this salary sacrifice was governed by a combination of HMRC guidelines and case law," she noted.

Ms Mistry Kandola said: "Salary sacrifice for pensions is here to stay for now and employers should make the most of it while it is here.

"With some carefully worded employee communications, employers reserve the right to remove it if the government changes its stance."

She argued that LCP has switched around 20 clients' pension schemes over to salary sacrifice, and if done properly and with the correct stakeholders involved it can be implemented within six weeks.

She said: "Our clients who have implemented pension salary sacrifice have been able to recover the cost of implementing pension salary sacrifice within the first three months.

"The main reason for the low take up in pension salary sacrifice amongst UK plc is to do with tax (non-tax experts are often put off of anything payroll or tax related), as well as worries around the task of implementing salary sacrifice taking up too much time. 

"These reservations need to be overcome as there are big savings to be had for employers and employee's right now."

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said: "Salary sacrifice can be hugely beneficial for employers and employees due to the national insurance savings for both parties. 

"There’s definitely a case for offering it but it does appear to be difficult and even costly for SMEs to implement and they would need to keep track of both salary figures pre-and post-salary sacrifice, which might seem like a bit of a headache to them."