Budget: Salary sacrifice for pensions – what employers should consider

Whilst this change is some time away, it’s important that employers start to consider its potential impact on their employee pension provision, total reward strategy and wider employee value proposition – particularly given potential future reforms from the new Pensions Commission.

Issues for employers to consider include:

• Modelling the cost of pension contributions: employers who operate pension salary sacrifice face higher employer’s NIC and Apprenticeship Levy costs – will the reduced savings continue to fund the operation of your arrangements?
• The impact across different employee groups: the impact of these changes on different employee segments (e.g., those near auto-enrolment thresholds versus higher earners) will vary – how can you establish what different groups save and how they’ll be affected?
• Operational and payroll challenges: there will be significant operational implications for payroll systems, reporting, and processes – how will you prepare for the changes required and ensure future compliance?
• Employee communications: Clear, updated communications (including updated member booklets and payslip explanations) that explain these changes to employees will be essential;
• Updating Terms & Conditions: it may be necessary to update employment contracts and scheme documentation – is a wider employment communication exercise necessary to ensure employees understand these changes and ensure good employment relations?
• Pension reporting functionality: there could be challenges in updating and generating accurate pension reports under new rules – how might this impact you?
• Pension scheme and benefits design: these changes are a catalyst to review overall pension policy and how it fits into the wider benefits strategy; and 
• Cost reduction strategies: how might your increased costs from this measure be offset by savings that might be made in other aspects of your benefit provision?

Our multi-disciplinary team of legal, tax, payroll, National Minimum Wage, pension auto-enrolment and employee benefit specialists is here to help you. Please contact the authors or your usual KPMG in the UK contact to discuss how we can support you with your employee pension schemes.

For further information please contact:

• Caroline Laffey
• Eloise Knapton