The savings picture is shifting: what do employers need to be aware of?
A number of key changes to saving schemes and allowances are due to come in that employers and employees should be aware of.
WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, have outlined below some of the key changes coming up.
1) Salary Sacrifice - The Government have announced from April 2017 it is limiting the range of benefits which can be bought using Salary Sacrifice, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “Life insurance, mobile phones, cars, parking and medical insurance are just some of the benefits which from April, will no longer be available through Salary Sacrifice. Employers will have to re-think the financial benefits offered in the workplace and ensure employees understand the changes and the financial impact it may have.”
2) Childcare - Childcare is one area where changes have already been announced which will be rolled out from early 2017. Parents who are already members of the current Child Care Voucher system can continue in it, providing employers still provide access to it; new members will also have the opportunity to join the current scheme up until April 2018. The new system, called ‘Tax-Free Childcare’, will be available online and the State will contribute 20p for every 80p that parents spend on childcare. The maximum State contribution per year will be £2,000 per child (or £4,000 for disabled children). Parents must be in work to qualify and earning just over £100 per week, but no more than £100,000 per year.
Watts-Lay comments; “Whether employees are better off with the old or new scheme depends on how much they earn, how much they spend on qualifying childcare and how old their children are. There will be no NI saving under the new system, therefore employed parents with lower childcare cost could be worse off.”
3) Financial Advice - From April 2017, the new Pension Advice Allowance will allow individuals to withdraw £1,500 tax-fee from their pensions, to help them pay for the cost of regulated financial advice for their retirement. It will enable individuals to withdraw £500 from their pensions, at any age and up to three times, but only once in a tax year. The Pension Advice Allowance will be available to defined contribution (DC) pension savers as well as ‘hybrid’ pension savers with a DC or cash balance element. This is an increase from the initial one-off £500 tax free allowance announced in the 2016 Autumn Statement. The Pension Advice Allowance will be able to be used alongside the tax exemption for employer arranged pensions advice, which means an individual could get up to £1,000 tax free to use for advice in a year.
Watts-Lay comments; “Anything that encourages employees to take financial advice when making such importance decisions about their retirement has to be a good thing. In fact, our recent Pension Changes Survey results 2017 show that only almost half (48%) of employers believe that their employees are not aware of the various retirement income options available to them at-retirement – the need for financial advice couldn’t be clearer.”
4) Lifetime ISA (LISA) - The new LISA will be available to individuals from April 2017 for those under age 40. Contributions will be topped-up by the Government by 25% with an annual savings limit of £4,000. It can be used for buying a first home (up to a value of £450k) at any time from 12 months after opening the account, or taken from age 60 without penalty, tax free. If accessed before then, the top up will be lost, including interest and savings which will be subject to a 5% penalty charge.
Watts-Lay comments; “The introduction of the LISA raises some important questions for the future such as; will it include salary sacrifice or not and will it accept employer contributions? We already see many companies giving employees a percentage of their salary to buy ‘benefits’ so could this be a method of funding the LISA in the future? We’ll have to wait until the specific rules are defined but this is definitely one to watch.”
He concludes; “Company perks are no longer just about pensions and a well communicated, flexible and relevant benefits package can improve an employees financial wellbeing. With so many options now available, the provision of financial education, guidance and advice in the workplace is essential for employees to understand what can be achieved through workplace saving.”
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