To sacrifice or not to sacrifice? That is the question. New proposed rule changes around salary sacrifice, where employees opt to sacrifice part of their salary for specific company benefits, will leave many people now wondering what the best course of action is for them.
Under the current regulations, employees and their employers could take advantage of lower tax and National Insurance contributions (NICs) for benefits such as mobile phones, laptops and tablets, company cars and private healthcare. But with the new proposals, effective from 6th April 2017, employees will no longer be able to sacrifice the ‘cash equivalent’ of the benefit from their gross salary without any tax liability. Instead, they now will be liable for income tax and Class ‘A’ NIC contributions on the value of these benefits.
The good news is that some widely offered existing benefits utilising salary sacrifice, such as childcare vouchers, cycle-to-work-schemes and additional employer pension contributions, would remain unaffected by the proposals.
That means there are still many advantages for employees to signing up to company salary-sacrifice schemes for these non-taxable benefits. Just as importantly, the savings from these schemes can be used to fund and support other HR initiatives and employee rewards.
Top of the priority list of benefits for many employers is an attractive pension scheme. Salary sacrifice will continue to mean that the further savings available to the employee and employer can be used to enhance the pension contributions with no extra impact on take home pay.
With pension auto-enrolment now legislated for UK employees aged over 22 and earning over £10K, it’s understandable that many employees will just assume that their pension is all in hand and they are adequately protected for the future. However, this is a dangerous assumption and employees will often benefit from access to impartial advice and support to help people decide if their pension is right for them and whether it could be working harder for their specific requirements.
The Financial Advice Market review recommended that employer-arranged pension advice up to £500 would not be liable to benefit in kind tax and the good news is that these proposals will leave this incentive unaffected. Online pension advice for employees offers real value as people can explore a whole series of options in one easily accessible place, without the higher cost and potential inconvenience of face-to-face consultation. This is especially important when you consider that less than half of people surveyed for The Pensions and Lifetime Savings Association’s 2014 Workplace Pensions Survey were willing to pay for financial advice.
In fact, research suggests that people are more likely to take advice from friends and family when it comes to financial investments then they are to go out and pay for it. So, whilst many people recognise the tax efficiency of being part of a pension scheme, they may not necessarily be convinced by its benefits to them personally and whether the disadvantages, such as taking home a lower salary, are an acceptable trade-off.
Access to good quality advice will ensure HR professionals are able to offer the most appropriate benefits to help them attract and retain the best employees. Online or ‘robo-advice’, is now increasingly sophisticated. With Wealth Wizards the majority of employees are able to get instant automated advice, and the applications can also identify the individuals that need more help or information from speaking to an adviser. An attractive pension scheme is undoubtedly a key attraction for many employees. Continuing to get the most from it, including benefiting from salary sacrifice, comes down to good quality advice so that employees can make an informed choice and be absolutely certain that they are making the most of their benefits.