Pensions, healthcare and group risk benefits will be affected significantly by a raft of legislative developments this year, says Nicola Sullivan
Several legislative developments affecting employers’ reward packages will hit the headlines in 2012. These relate to six key areas covering pensions, healthcare and group risk benefits.
First up is the retail distribution review (RDR), which will be implemented from 31 December 2012, and will ban provider-paid commission on pensions. Steve Herbert, head of benefits at Jelf Employee Benefits, said employers have so far been fairly ambivalent about RDR but he predicts many difficult discussions ahead over the way consultants and advisers are remunerated.
“If nothing changes on the scheme going forward, the commission model can carry on, but if a company actually wants to make any significant changes to the shape of a scheme, then in all probability they are going to have to find a different way of remunerating their advisers,” said Herbert.
Next, pensions minister Steve Webb has indicated on several occasions that short-service refunds of employee pension contributions made into trust-based defined contribution (DC) schemes will be abolished. “It is nonsense that an employee can be with one organisation for less than a year and still get a refund of contributions, and be with another organisation where the money they have paid in sticks,” Herbert said. “It does not help the retirement savings landscape at all.”
Third up, legislation will be introduced in the Finance Bill 2012 to ensure the amount of tax relief given to employers making asset-backed contributions to registered pension schemes accurately reflects the amount made and does not give rise to unintended excess relief.
Fourth on our list are the 2012 pensions reforms. It is surely impossible for employers not to know by now that this year will see the largest organisations start to comply with the reforms, including auto-enrolment. Last year it was announced that auto-enrolment would be delayed from 2014 to 2015 for employers with fewer than 50 staff. This year, Herbert expects more changes and delays to the auto-enrolment timetable as the economy suffers.
A fifth development in 2012 is that there will be little appetite to invest in group risk benefits. Chris Ford, director of group risk at Jelf Employee Benefits, said: “Other factors that will influence the group risk market will be the competition for existing business, disproportionate premium rises and legislative reform such as the removal of the default retirement age and auto-enrolment.”
Lastly, this year the government will assess the findings of the Sickness absence review, conducted by Dame Carol Black, national director for Health at Work, and David Frost, former director general of the British Chambers of Commerce. The review’s recommendations that would affect employers’ sickness absence strategies include: an independent assessment service where employers and GPs can refer people who have been absent from work for more than four weeks; a job-brokering service for staff on long-term absence who are unable to return to their employer; and tax relief on private medical insurance for basic-rate taxpayers. The review also called for tax relief on vocational rehabilitation services.
But David Prosser, strategic development manager at Axa PPP Healthcare, said tax relief should also be available for higher-rate taxpayers. “We thought, from an insurer’s point of view, that it would be, administratively, rather a nightmare,” he said. “We think basic-rate tax relief ought to be available [to higher-rate taxpayers]. If it comes to pass, I think this will increase the number of employers using vocational rehabilitation.”
Read more about the pension reforms