The Role of Pensions in Talent Attraction and Retention
This Pensions Week, PSTAX Head of Employment Taxes, Angela Ferguson explores how pensions are important as a tool to attract and retain the best talent.
Police Sector: Exploring Cheaper Pension Options
In the police sector, we have been approached to look at whether new staff recruits can receive higher take-home pay by being offered a cheaper pension option than the Local Government Pension Scheme (LGPS). This particular force has struggled to compete in terms of recruiting police staff because it is in a high-cost housing area and does not pay London weighting.
There are many factors to consider such as:
- Adhering to the Auto-enrolment minimums
- The legal basis for doing this
- Whether it could impact on employer pension rates within LGPS
- Whether it could be deemed discriminatory to existing LGPS members
- The level of ‘education’ that might need to be provided to new staff prior to their decision; is this financial advice and who would pay for it? Could the pension advice tax exemption apply?
- What options exist for a lower-cost pension offering?
- How could this be packaged to make it attractive to prospective police staff recruits?
NHS Trusts: Retaining Senior Staff Amid Tax and Pension Challenges
In recent times, recruitment and retention is even more key to NHS Trusts to ensure having enough staff to service public demand. An increasing number of NHS Trusts are acting to retain certain key staff such as senior staff (including doctors) who are impacted by the tax and pensions legislation.
The problem is that many senior staff/Doctors who are impacted by the annual and/or lifetime charge are choosing to leave the NHS rather than face additional tax charges. In response to this Trusts may decide to offer greater flexibility in how their reward packages are put together.
One option Trusts have is to allow employees to opt out of the NHS Pension scheme and to recycle the equivalent employer pension contributions into a discretionary additional salary payment. This is often referred to as ‘recycling employer contributions’.
The Trust’s employment costs are maintained at the same level with the senior employee benefiting from increased take-home pay and a reduction or elimination of their tax and pension charges. These senior staff are therefore more likely to continue their employment with the Trust.
Before going down this route a Trust will of course need to undertake a review of the technical and regulatory issues associated with this significant change.
Key Considerations in Pension Strategy Implementation
- Ensuring the Trust does not fall foul of the Auto Enrolment Regulations, which we have discussed with the Pensions Regulator
- Identifying and communicating with the appropriate staff who may have access to the additional salary payments. Gathering evidence that opting out is indeed in their best interests and providing access to independent advice in this regard
- Particular care needs to be taken regarding staff who have already opted out of the pension scheme and also any unintended consequences on staff who will not have access to the additional salary payments
- Drafting a policy covering any future changes that may be required including for example changes in funding rates
- Employment law considerations, including impact on death in service and ill health retirement benefits where an employee is no longer making contributions to the NHS Pension Scheme
- Gaining the appropriate regulatory approvals and agreeing on how additional salary payments are shown in the Trust’s financial statements
Subject to the relevant pension scheme rules, Councils and the wider public sector may want to consider similar options.
PSTAX Support – Enabling Compliant Solutions for Optimising Employee Pensions
PSTAX can provide support in implementing a well-communicated and compliant scheme which will in turn support your recruitment and retention goals!