A number of key changes to workplace savings are due to come in that employers and employees should be aware of.
WEALTH at work has outlined below some of the key changes coming up.
- Salary sacrifice – The government has announced from April 2017 it is limiting the range of benefits that can be bought using salary sacrifice, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low-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, said: “Life insurance, mobile phones, cars, parking and medical insurance are just some of the benefits that, 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.”
- 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 childcare 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 £0.20 for every £0.80 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 said: “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.”
- Financial advice – The government has launched a consultation on allowing individuals to take £500 tax free from their defined contribution pension, to redeem against the cost of ‘holistic advice’ that considers all of an individual’s savings; such as pensions, ISAs, share schemes and other investments. According to the proposals, the ‘Pensions Advice Allowance’ will come into force from April 2017 for individuals below age 55, but the exact age is yet to be agreed. In addition, from April 2017 the tax and NI relief for employer-arranged pension advice will increase from £150 to £500.
Watts-Lay said: “Combined, these two savings could give employees access to up to £1,000 of tax advantaged financial advice. Having the ability to pay for advice is important as too many people go it alone and make poorly thought-out decisions. The benefit in improved retirement income can more than outweigh this cost, so taking fully regulated advice could save employees money in the long run while also providing added consumer protection.”
- 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 that will be subject to a 5% penalty charge.
Watts-Lay said: “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.
“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.”