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Salary sacrifice remains a powerful benefits mechanism

Aon
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Closing schemes would reduce value of most benefits. Aon’s post-Autumn Statement event in London included a poll of nearly 90 HR/Reward professionals: 71 percent felt the erosion of salary sacrifice would impact benefits negatively and 71 percent also believed they would have to rethink benefits strategy in the future.

Aon polled 71 percent of delegates polled at its salary sacrifice seminar felt they would have to rethink benefit strategy as a result of the changes announced in the Autumn Statement. Seventy-one percent also felt that the erosion of salary sacrifice would impact benefits negatively. The post-Autumn Statement seminar, timed to answer questions on the long-anticipated salary sacrifice changes, was held for 88 HR and reward professionals at Aon’s London headquarters.

Jeff Fox, principal at Aon Employee Benefits, said: “Employee benefits are not a subject usually discussed in the Budget or Autumn Statement. In the past, we’ve found relevant details in the technical statement afterwards, but this year, salary sacrifice benefits were highlighted in the televised speech, and even mainstream media commented on individual impacts. Perhaps not surprisingly, there has been commentary on the ‘death of salary sacrifice’, but this is inaccurate on a number of levels, not least because the existing treatment of pensions, childcare vouchers and bicycles remain unchanged. These are among the most popular salary sacrifice benefits and deliver the greatest value to employers and employees alike.

“Pension alone normally accounts for 80 percent of an employer’s salary sacrifice savings, so in its current form it remains a useful vehicle for savings. After the seminar, 61 percent of respondents said the Autumn Statement changes were not as great as they thought, but they do need to plan for them.” However, the changes mean that employers will no longer save National Insurance when an employee elects to sacrifice cash for benefits such as health screenings or additional life assurance (on top of that funded by the employer direct), and employees will be taxed on these for the first time. Computers, mobile phones, car parking and in-house gyms will all lose their full or partial tax exemption. Further ahead, there will be significant changes to company cars, which will have a large impact on employers and employees who utilise the current advantageous arrangements.

Martha How, principal at Aon Employee Benefits, further explained: “A second argument for salary sacrifice remaining a powerful benefits delivery mechanism is because there is a whole tranche of benefits where employees currently pay tax but save NIC. The Autumn Statement proposals leave the employee National Insurance savings intact.” These benefits include private medical insurance, dental insurance, travel insurance and will also include health screenings, life assurance and income protection insurance.

How continued: “The fact remains that salary sacrifice will continue to deliver significant employee National Insurance savings, based on current proposals, while employers will still benefit from the big three – pensions, childcare and bikes. Now is a good time to re-assess benefits strategy, but closing salary sacrifice schemes for most benefits would reduce the real value of benefits in the hands of employees.”

Pre-event polls
With the erosion of salary sacrifice, I feel:
That benefits will be negatively impacted: 71 percent

That there will be little or no impact: 24 percent

That it will have a positive impact: 0 percent

Do not know: 5 percent

In terms of employee communications:
I am concerned that employees will not understand the changes: 50 percent

I am confident this can be addressed with good online comms: 25 percent

I am not worried; employees do not understand the current arrangements: 26 percent

Post-event polls
With regard to the impact of these changes, I believe that:
Changes are very serious and I have a lot to do: 17 percent

It is not as great as I thought, but I need to plan for it: 61 percent

Little or no impact for my organisation: 22 percent

Thinking about the future for employee benefits
There are a lot more difficult challenges to come: 27 percent

We need to rethink our benefit strategy 71 percent

Government led changes may be quite static from now on: 2 percent

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