Human Capital Management
What's so smart about SMART pensions?
A number of schemes are promoted in the Human Capital Management arena, often having major impacts on payroll managers and payroll operations with consequences on Tax and National Insurance application & contributions.
One such scheme is marketed as the “Smart Pension Scheme”. In reality this is a traditional salary sacrifice arrangement in which the employee gives up an amount of cash pay which is then paid by the employer. In this scheme, the arrangement applies automatically unless the employee chooses to opt out in advance.
The arrangement is often made so that if an employee does not opt out at the start, they cannot choose again until the first anniversary, unless they experience what is often referred to in the flexible benefits world as a “lifestyle change” such as marriage or the birth of a child.
As these schemes are on the increase and forming part of flexible benefit products and services, the HMRC sought legal advice which confirmed that the Smart Pension Scheme can be effective in reducing the Class 1 NIC liability of the employer and employee who decide to participate.
HMRC also acknowledged that the acceptance of such a scheme by the employee equally represents the tacit acceptance of a change to the terms & conditions of employment.
But be warned, don’t just assume that our friendly tax inspector will take such schemes at face value; he will be interested in checking that such schemes have been properly implemented.
The following types of checks will be made:
- Have the necessary rule changes been applied to the pension scheme to reflect the cessation of employee contributions and the increase in employer contributions?
- Have participants in the operation been notified of the new contractual arrangement?
- Are the changes reflected on the Pay Advice, PAYE records, etc.?
Flexible benefit schemes are increasingly being made available to employees regardless of the size of the employer. With the intended increase in the UEL, they are likely to become even more popular in the future.
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purposes only. This information should not be construed as Ceridian providing legal, tax or other advice
to any specific individual or organisation. Please consult your appropriate adviser for specific advice.
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