On 23 November 2016, Chancellor Philip Hammond delivered his Autumn Statement 2016 speech.
Below is a round-up of the key announcements that impact employee benefits:
Tax-free personal allowance will increase to £11,500 in April 2017 and £12,500 by the end of the current Parliament’s term in 2020. The higher-rate threshold will increase to £45,000 in 2017 and to £50,000 by 2020. From 2020, the tax-free personal allowance will rise in line with the Consumer Price Index rather than the national minimum wage.
The national living wage will increase by 4.2%, rising from £7.20 an hour for those aged 25 or over to £7.50 an hour in April 2017.
From April 2017, the government will limit the range of benefits that attract tax and employer national insurance (NI) advantages when offered through a salary sacrifice arrangement. Benefits that are exempt from these changes include pensions and pension advice, childcare, bikes-for-work schemes and ultra-low emission vehicles (ULEVs). Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation, and school fees will be protected until 2021.
The government will consider how benefits in kind (BIK) are valued for tax purposes, with a call for evidence to be announced at the Budget 2017. The government will also consult on employer-provided living accommodation.
The government will set new bands and rates for company car tax for the lowest-emitting cars, which are set be announced in the Finance Bill in December 2016, ready to come into effect for 2020-21. Tax rates for cars emitting more than 90g of carbon dioxide per kilometre will rise by one percentage point.
From December 2016, the government will abolish the tax advantages awarded under employer shareholder status (ESS), with the status itself to be closed to new arrangements at the next legislative opportunity.
The standard rate of insurance premium tax (IPT) will increase from 10% to 12% from June 2017.
The government is to consult on options to tackle pension scams, including a ban on cold calling.
From April 2017, employer and employee national insurance (NI) thresholds will be aligned to pay NI on weekly earnings above £157.
The government will reduce the money purchase annual allowance from £10,000 to £4,000 from April 2017. A consultation on the change will run until 15 February 2017.
SMEs must do something and do it now as fears of a capacity crunch looms over auto-enrolment
Between now and the end of 2018, an unprecedented number of businesses across the UK will be expected to put in place pension schemes to address the Auto-enrolment Legislation. There are genuine concerns that capacity, particularly at peak times, will not meet demand and it is feared that capacity issues could lead to providers bringing down the shutters, reducing ancillary services and cherry-picking new clients.
In 2014 approximately 34,000 businesses with 50 to 249 employees had to confirm that they have a compliant pension scheme for Auto-enrolment. However, many SMEs may struggle to find a pension provider willing to work with them. One of the markets leading pension providers is already stating that they will not accept any more Auto-enrolment schemes without a long lead time. This will become increasingly common across the sector, resulting in failure for many businesses to find a provider. SMEs that leave staging until the last minute will face the capacity crunch and possibility of a series of hefty fines.
Now for the numbers…
So, how big is the overall Auto-enrolment staging project the Government has set UK Plc and why is there such a sense of urgency? Last year 34,000 businesses reached their Staging Date, which was approximately the same number of company schemes Standard Life has dealt with in total since the early 1970s. In the 2015/16 tax year approx. 153,000 small and micro businesses employing less that 50 people will need to stage, with nearly 617,000 similar sized employers in the following tax year. In 2017/2018 new employers in the market are expected to total 533,000 which amounts to just under 1.4m businesses expected to stage their pension scheme in the next few years. It is clear that the SME sector will struggle to comply in the time left to complete such an enormous task.
What’s next…?
Complying with the Auto-enrolment legislation is by no means a simple matter and choosing a pension provider is not straightforward. Many responsibilities, such as planning, testing and implementation ahead of the deadline required, all typically need to be addressed in the six months ahead of each employer’s deadline.
So do something and do it now!
Due to the economies of scale, many SMEs will not have the infrastructure to manage the Auto-enrolment process on their own. For many small ‘owner manager’ businesses, tackling Auto-enrolment is outside of their comfort zone and depending upon outsourced help and advice will be key. Again this issue may cause delays in staging and if left unchecked for too long may leave the employer open to warnings from The Pensions Regulator and hefty follow-up fines.
Seeking professional assistance is crucial so start making enquiries as there is not a moment to spare. The best advice businesses can absorb is do something and do it now otherwise you could be left out in the cold with The Pensions Regulator for company and face a hefty penalty fine.
At the EB Partnership we have helped clients ranging from 5 employees and up and have devised a cost effective solution that will take some of the pain away. Please email neil.morrow@theebpartnership.co.uk for details
Brexit, lets avoid a tragedy with young people and pensions
As Advisers we have always recommended investment based savings should be viewed over the longer term as volatility over time will usually lead to better results. This view is particularly appropriate when speaking with younger savers as they can afford to take more risk in the quest for better returns.
At times like these where the market is in a state of flux though, volatility can be frightening for anyone, and if as a young saver you log into your pensions portal only to see that the value of your investments has halved you would have every right to be concerned.
If the statistics we have seen are to be believed, a significant majority of the 18-24 year olds voted to Remain, and a majority of 25-49 year olds voted the same way and so could feel that they are seeing their values fall as a result of something they never wanted in the first place!
It would be a real tragedy if young people, more switched on to pensions than ever before due to publicity around Auto-enrolment, found themselves put off the whole idea of long-term savings due to poor investment results. As a group they are not saving enough anyway, and I suspect it wouldn’t take much to convince people to opt out of pension auto-enrolment and ‘bolster’ their pay packets instead.
It may help that the FTSE 100 has bounced back somewhat, but let’s not forget that the FTSE 250 is still freefalling, and this is often seen as a better indicator of how the UK market is really doing. How a young saver’s portfolio is doing could very much depend on what time or day of the week they are checking it.
In some respects, we are fortunate that young people tend not to check their pensions terribly often. But with share price volatility dominating the headlines it would come as no great surprise if Brexit was the prompt to change this.
This means that Advisers, scheme administrators, providers and HR directors have a conundrum. Do they talk to savers about their finances and risk more people paying attention, or do they leave it alone and hope that no one is looking anyway.
The EB Partnership have always believed that the communication of benefits is vital for many reasons, and in fact are so passionate about it we launched a company to help companies of all sizes do that very thing (www.benefitscommunication.co.uk)!
Given the Brexit vote, we feel that it is better to engage with staff than not to, but it needs to be done carefully. We all need to find a way of explaining to policyholders that while their investments may have fallen, they have a few decades before retirement and are in a good position to recoup any losses.
Communications need to be clear, concise and reassuring. And they need to be soon. After all, if schemes leave it too late, their members could already have ‘voted to leave’ with regards to their retirement savings.
How would Brexit affect UK Financial Services Regulatory Structure?
On June 23rd 2016 Britain, Europe’s largest financial centre, will vote on whether to leave the European Union.
A number of analysts have stated that the country’s banking and fund management industries are among those that could lose most from the so-called Brexit, though much depends on the Trading terms Britain would be able to negotiate with the EU.
The following details some potential changes that could affect the financial services industry, which will likely have a knock on affect to investors, clients and policy holders alike:
Regulatory Structure
Rules – The great majority of Britain’s Financial Services rules are derived from EU Law. Though Britain has gone further than EU requirements in some areas such as Banker pay and general capital requirements, a new rule framework would need to be devised within 2 years of exit.
Passporting – Businesses such as UK Insurers, Banks, Asset Managers and payment service Providers who are authorised in Britain have “passport” rights to conduct business in all EU countries, either remotely from Britain or from a branch in another member state, which would be lost on exit.
Having voted to leave Europe Britain could join the European Economic Area (EEA) which has Norway, Liechtenstein and Iceland as Members which would allow financial companies to continue to have passporting rights to the EU, although any influence over the formulation of rules going forward would be lost.
If Britain did not join the EEA (or was not accepted as a Member) then any UK firm wanting to operate in the EU would have an “equivalence” test to prove to Brussels that the rules in the UK where comparable to those in the EU.
Also, going forward UK companies seeking to offer financial services to customers in the EU may need to establish a subsidiary in the EU which could be more expensive than running a UK Branch.
To be clear we are not advising our Clients how they should vote on June 23rd as we all will have our own opinions. The purpose of this blog is to put forward some areas of consideration that may affect Financial Services, and we look forward to learning more from ‘both sides of the debate’ in the run up to the vote!
Changes to Auto Enrolment Employer Duties
From this April, The Pensions Regulator is proposing to introduce some changes to Auto Enrolment. Have a look at their consultation document to view these technical changes.
So here’s how it affects you:
Extension of discretion to exempt certain employees from AE obligations
- Directors who have a contract of employment with the company.
- Limited Liability Partnerships (LLPs) - Genuine partners but not partners who are effectively just employees.
- Anyone with the new tax protected status for their pension pot from 6 April 2016.
- Any worker who receives a Winding Up Lump Sum, ceases to be employed, is re-employed and becomes eligible again all within the same 12 month period.
Re-declaration of compliance
There are currently two deadlines in law for re-declaration of compliance. The proposal is to have the same deadline of 5 months after the 3rd anniversary of the staging date or previous re-enrolment date.
Early Automatic Enrolment – bringing your staging date forward
- No need to obtain agreement from pension schemes for those employers who have no-one to enrol.
- Notify TPR no later than the day before the chosen new staging date, and declare at the same time.
- Where the employer has no-one to enrol they can bring forward their staging date to any date, not just the 1st of the month.
If you have any questions about this please give us a call and we can discuss the implications.
Increase in IPT – are companies aware?
Last year's budget made headlines for many reasons, but one of the announcements that went under the radar for most people was an increase in the rate of Insurance Premium Tax (IPT). This increase from 6% to 9.5% took effect from November last year, although most insurance providers are only passing the tax increases on now.
IPT is applicable on many different types of insurance, including Car Insurance and Buildings & Contents Insurance for individuals. This rise will also be bad news for employers who provide their employees with benefits such as Private Medical Insurance (PMI) and Health Cash plans as IPT is due on all of these.
I can’t help but think that the Government has got this wrong. We are led to believe that the NHS is underfunded and under resourced, so anything that encourages individuals to seek private medical treatment should be a good thing. Yet, this increase in IPT is doing the opposite.
With PMI costs typically increasing by 10% each year, this additional cost could well be the tipping point causing employers to start reducing the level of cover provided or increasing the period of time before an employee can join. Either way this would be bad news for employees.
So what can employers do to mitigate against this increase? Well, instead of renewing with the same provider each year, companies can engage with ourselves or other group risk specialists to carry out a thorough review before renewal. Savings can usually be found by playing insurance companies off against each other.
Employers who wish to reduce their PMI costs can consider using a Health Cash plan to run alongside the main PMI scheme. This will provide employees with a range of medical cover for typically 1/5 of the cost of PMI. Cash plans can also be used to pay the excess costs of PMI schemes.
The EB Partnership provides clients with a full annual review of their corporate group risk policies such as Group PMI, so if you would like to take advantage of this service, please let us know.
If Father Christmas was an employee
Pantomime season is upon us so a seasonal question for you: If you take on Father Christmas as an employee will he have to be auto enrolled and where would you send his regulatory notifications?
There are a number of reasons why he should be (workforce harmony, simpler to administer pensions on the same basis for all staff etc.) but there are also a number of other considerations you could take into account!
For example, where is he ordinarily resident? Let’s assume he is resident somewhere other than the UK, then will he spend enough time in the UK to qualify as resident?! If he does, lets also look at the latest Directives from Europe regarding paying overtime and holiday pay (and given he potentially has up to 51 weeks holiday a year how do you plan for that!
We recommend that you take him on a short term contract until Christmas Eve and then you can safely avoid the earnings spike at Christmas. This, combined with using Postponement from day 1 until 3 months should safely see this situation avoided.
Also, is it likely that he only has one job given the very seasonal nature of his work?!
And let’s not forget his age! Given he is likely to be older than State Pension Age this makes him a non-eligible jobholder. But when you look again surely he is older than 75 and so outside the scope of auto-enrolment altogether!
Other considerations I have had include his means of transport – does that count as a company vehicle, and also what about the Grotto – is that given as part of the job and if so does he pay tax on the Benefit In Kind?!
In summary though – I imagine the Pension Regulator guideline is 'don't assume that because someone is a fictional character they are not classified as a worker for AE purposes.'
Oh and in terms of the regulatory notifications, you can either provide these via a Benefits Portal like BORIS or post them to:
Santa/Father Christmas,
Santa's Grotto,
Reindeerland
XM4 5HQ
The cyber thieves are watching - make sure you lock your doors!
According to ThreatMetrix, the UK is now the top target for cyber-criminal activity globally.
To many this comes as no surprise following a spate of high profile security failures from large multinational firms and the phishing e-mails that we are all so used to. The threat of stolen property, bad publicity and corporate embarrassment is something that UK companies are increasingly aware of and Cyber Security concerns now stretch much further than IT departments.
Avoiding cyber-crime is now on the agenda of finance teams, physical security teams, legal and compliance teams, sales and marketing teams, customer services and human resources. Everyone has a stake in ensuring their business is safe from cyber threats.
Whilst large multinationals have been allocating truly monumental budgets to combat these very real and increasingly sophisticated threats, smaller SMEs are likely to find it much harder to build and audit robust systems especially as they more often than not link to so many external third party service providers (Payroll, HR, Marketing etc).
For a cyber-criminal looking to profit from the poor cyber practices of UK businesses and individuals, it is like a burglar stumbling on a street where all the street lights are out, the doors of the houses are wide open and there is a sign up saying that everyone has gone on holiday and won’t be back for a month.
So is there anything we can do?
Well if you can afford a cyber security audit that would be a great start, but it is important to make sure that all departments are on board as there is no point paying for an audit if the rest of the organisation won’t implement the recommendations! The UK Government has been aware of this growing threat for some time and back in 2012 they published their 10 steps to Cyber Security and subsequently Small Businesses: what you need to know about cyber security guidance. Then in April 2014 the government launched the Cyber Essentials Kite mark scheme. Organisations can gain one of 2 new Cyber Essentials badges, either the standard badge or the “Plus” badge if an organisation meets additional security criteria.
Apart from undergoing your own cyber audit companies should be asking any external service providers they link with if they have undergone a cyber security audit and which level of Cyber Essentials badge they hold.
From a legal point of view the security of employee data is very much a company's responsibility. The EB Partnership recommends the BORIS benefits platform from Benefits Communication Ltd which has gained a Cyber Essentials Plus accreditation, one of only 139 companies in the UK to have achieved this standard (as of 12/11/2015). If you use a communication portal for your employees make sure it is secure and have a look at what BORIS could add to your benefit communication strategy.