There is an under-used salary sacrifice option available for employers to implement and offer to employees around pensions guidance and advice.
This can be helpful for individuals as it allows them access to a pensions advisor or consultant for support with pension and related issues at a lower cost, making it more accessible. These can include:
- Pension tax (Annual Allowance) charges, position, and options.
- Retirement planning – to incorporate the various options as a result of the McCloud remedy.
- General retirement planning and understanding the specific pension options.
- Pension estimates and projections.
- Contingent decision work as a result of the McCloud remedy.
- Review and correction of pension records.
Tax exemption – details
If an employer provides pensions advice to its employees on a one-to-one basis, pays or reimburses the costs of advice incurred by the employee or facilitates advice via a salary sacrifice arrangement, the cost is exempt from Income Tax up to £500 in a tax year provided either condition A or condition B (below) is met. The exemption applies to employees, former employees, or prospective employees.
Condition A – availability: the relevant pensions advice is provided under an arrangement that is either open to all employees generally or to all employees at a particular location; or
Condition B – age, ill-health: it is open to all employees generally or to all employees at a particular location where the employees have reached the minimum qualifying age or meet the ill-health condition.
Advice definition
The provision of information or advice in connection with the person’s pension arrangements or the use of the person’s pension funds. It can include advice on general financial and tax issues relating to pensions arrangements or pension funds allowing individuals to make informed decisions about saving for their retirement.
What does this mean?
It means that an employee can access advice or guidance in respect of their pension benefits at a much cheaper rate. The employer provides access to the salary sacrifice arrangement and so the provider of the advice or guidance invoices the employer, the employer then pays the bill. The employer then recoups the cost from the individual through a salary sacrifice arrangement.
We have set out an example below:
Cost for guidance: £400 + VAT (£480)
Employer pays the invoice of £480 – but can offset the VAT.
£400 is then due by the individual, this is managed through the salary sacrifice arrangement. For a 20% taxpayer the total cost would therefore be £320 (instead of £480) and for a 40% taxpayer the cost would be £240 (instead of £480).
It may also be possible to recoup the salary sacrifice cost over a period of time rather than in one amount.
There would be some set up required by the employer but having this arrangement in place may help employees understand their own pension position in more affordable way.
In the event that this might be of interest, we have included a link below to the .gov guidance.
We hope this is helpful but if you need any additional clarity, please get in touch.
