Chancellor George Osborne (pictured) delivered the Budget 2016 on 16 March. It included a number of key announcements impacting reward and benefits:
- The government is considering limiting the range of benefits offered through salary sacrifice arrangements. It intends to continue to allow pension saving, childcare and health-related benefits, such as bikes-for-work schemes, to attract tax and national insurance contribution relief when provided through a salary sacrifice arrangement.
- The government confirmed it will phase in tax-free childcare from early 2017, with parents of the youngest children able to enter into the scheme first. All eligible parents will be brought into the new scheme by the end of 2017. The existing childcare voucher system will remain open to new entrants until April 2018.
- The government will consult on how to extend shared parental leave and pay to working grandparents. The consultation will launch in May 2016 and will consider options for streamlining the system and the potential to make better use of digital technology.
- The standard rate of insurance premium tax (IPT) is to rise from 9.5% to 10% from 1 October 2016.
- The tax-free personal allowance limit will increase from £11,000 in 2016-17 to £11,500 in 2017-18. The higher-rate tax threshold will rise from £43,000 to £45,000 in April 2017.
- Fuel duty will remain frozen for the sixth consecutive year. The rate of fuel duty will continue at 57.95p per litre for 2016-17.
- The government is implementing an individual lifetime limit of £100,000 on gains eligible for capital gains tax exemption through employee shareholder status. This applies to employee shareholder status arrangements entered into from 17 March 2016.
- From April 2017, the government plans to increase income tax and national insurance relief for employer-arranged pension advice from £150 to £500.
- Employer pension contributions are to increase in the public sector from 2019-20. The increase follows a government review of the discount rate used to set employer contributions to unfunded public service pension schemes; the discount rate is being set at 2.8%.
- The government is to consult on the introduction of a single, clear definition of financial advice and on the introduction of a pensions advice allowance. The latter would enable savers to withdraw up to £500 tax-free from their defined contribution pension scheme to redeem against the cost of financial advice. The pensions advice allowance would be available to under 55s but the exact age at which savers could make withdrawals will be determined following the consultation.
- The government is to restructure the Money Advice Service, The Pensions Advisory Service and Pension Wise into two financial guidance providers: a new pensions guidance body and a slimmed-down money guidance body.
- The government has committed to ensuring that the industry designs, funds and launches a pensions dashboard by 2019.
- The government will launch the Lifetime individual savings account (Isa) in April 2017. Individuals between the ages of 18 and 40 will be able to open an account and save up to £4,000 a year into the savings vehicle with a 25% government contribution up until their 50th birthday. The savings and government contribution can be used to buy a first home or withdrawn as retirement income after the age of 60. The savings can be withdrawn for alternative purposes at any other time but they will be exempt from the government bonus and will incur a 5% charge.