May 2, 2023

The Three Key Employee Benefit Issues from this Year’s Budget.

We’ve avoided the temptation to regurgitate the facts surrounding the budget that you will no doubt have received from a variety of sources. Instead, we will focus on pulling out what we believe are the three key employee benefit issues, the HWWA Consulting view on these matters and how we are helping or can help our clients with the changes.

Increasing employment participation

A range of initiatives are being introduced, aimed at driving those people not working back to employment. The long-term sick and disabled, welfare recipients, older workers (who we’ll discuss later) and perhaps most significantly, parents.

Inevitably we believe in participation, and our mission is to make sure you have effective and efficient employee benefits to reward, attract and retain your staff. Such benefits can make your employees effective and efficient, keeping them at work by maintaining and increasing their wellbeing.

We would argue the planned changes to childcare are the most significant here. Given most childcare institutions tend to operate close to or at capacity, one would imagine there will need to plenty of growth in this sector to cope with the demand. There is then the question of what the right incentives are to attract non-working parents back to the workplace.

It’s important to remember that modern employee benefits rarely just do what it says on the tin. Life cover is not just life cover and may include 24 hour access to a GP, for example. Income protection may also include an Employee Assistance Programme where you can get help with legal issues, your mental health or financial hardship. Employers need to offer a range of benefits but also need to ensure the full spectrum of what is available is effectively communicated.

How can HWWA Consulting help?

We provide consultancy across all benefit types. This extends to both explaining the relevance of benefits as well as the acquisition or review of benefits. Depending on how you plan on growing your business going forward, you’ll need a variety of benefits to help attract people back to the workplace or more specifically, your workplace. Whether we help you with just one or even several benefits, please let us know if you wish to review your reward and benefits strategy to enable both your business and your employees to prosper.

The short-term financial health of your employees and the impact of the budget

‘OBR forecasts inflation in the UK to fall to 2.9% by the end of 2023’ was an eyebrow raising prediction when Jeremy Hunt announced this. The news on Wednesday that inflation increased when next measured, following consecutive months of falling inflation, was a surprise. It makes this forecast, again, seem unlikely. Food and non-alcoholic beverages played a big part in this latest move, with prices increasing by 18.4% from last February.

ONS chief economist Grant Fitzner said: "Inflation ticked up in February, mainly driven by rising alcohol prices in pubs and restaurants following discounting in January. Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing.”

No short-term cost relief yet, then, for businesses and their employees. Workforces will, therefore, continue to be looking for significant pay rises or support to combat the high cost of living.

Welcome support did come in the form of an extension to the current Energy Price Guarantee (EPG). On 1 April 2023, the EPG was set to rise by a further 20% on average, taking a typical bill under the EPG from £2,500 each year to £3,000 per annum. That said, the Energy Bills Support Scheme we have enjoyed over the last 6 months has ceased and so the average household is likely to need to find around £200 extra for energy bills during the second quarter of this year. The EPG will still rise to £3,000 each year in July – however, it's unlikely this increase will have any impact on bills now because Ofgem's Energy Price Cap is predicted to fall well below this level in July. Households pay whichever is the lower of these two rates.

We do applaud Prepayment meter customers paying less for energy from July, as charges are brought in line with those for direct debit customers. The freezing of fuel duty - the 5p cut to fuel duty on petrol and diesel, due to end in April, being kept for another year is also helpful.

The level of saving across the UK remains, unsurprisingly, low. Many households have little or no emergency funds. Whilst ISA allowances have been frozen, the extension of the Help to Save scheme to April 2025 is a positive, giving low-income earners claiming universal credit or working tax credit a potential bonus of up to £1,200 to assist in this regard. How easy such households will find it to save in the current climate is another matter.

The freezing of Income tax thresholds is not helpful here. This ‘fiscal drag’ will mean effectively a third or more of any salary increases most employees get will be lost in tax.

How can HWWA Consulting help?

We can provide financial wellbeing webinars and workshops, with a focus on addressing the cost of living. We’ve already helped hundreds of employees from across our clients this year. 99% of attendees have confirmed that they would recommend the support to a colleague.

Encouragement for the over 50’s to return to the workplace and good news for the highest earners in terms of increased pension allowances

The headlines about this shift in policy focussed on the ability to save more into pensions for the highest earners. However, there is also potential good news for over 50’s who have already accessed pensions on a flexible basis. The Money Purchase Annual Allowance is rising from £4,000 per annum to £10,000 per annum from 6th April 2023. We see many people who think this rule means they have to stop paying into pensions altogether, so the education we offer in this regard helps. This also presents an opportunity for people to pay money into a pension from age 55 and take it out shortly after; ‘immediate vesting’ can deliver an annual tax win but few over 50’s will know about this or understand it fully. Again, education will be key here.

The removal of the Lifetime Allowance (LTA) on pension savings is clearly a significant move. Whilst the legislation will technically be abolished as Mr Hunt suggested, it will remain in spirit, at least to a degree. The tax free lump sum under the new regime will be capped at an absolute maximum of £268,275 – equivalent to 25 per cent of the current LTA – from the next tax year and thereafter. Those already above the LTA can save tax efficiently again, but the lump sum cap does mean that this is mostly about tax efficient growth and avoiding Inheritance tax, as opposed to the standard pension tax relief we’re used to.

The Tax-free yearly allowance for pension pot savings has risen from £40,000 to £60,000, after a nine year freeze. This is, again, a significant opportunity for those who can take advantage.

If you're a very high earner, the annual allowance reduces dependent on what you earn. Tapering will apply from £260,000 going forward, increased from £240,000. The lowest Tapered Annual Allowance has increased from £4,000 to £10,000.

All good news, but perhaps the biggest news is about what didn’t happen or receive much, if any, commentary. There has been speculation in the past about a single rate of tax relief on pension savings that would likely be accompanied by a ban on Salary Exchange (also known as Salary Sacrifice). For those businesses not offering Salary Exchange on pension savings, coupled with higher limits for employees to contribute to pensions, the opportunity remains to either take advantage of the Employer National Insurance savings available or to use those savings to boost either the pensions or wider benefit packages for their workforce.

How can HWWA Consulting help?

Employees from our existing pension retainer clients can get in touch to book a 1-1 discussion to see how they are impacted. We can also provide Executive Financial Coaching for higher earners (typically over £100k per annum) that examines all financial areas rather than just focus on pensions.

In addition, we can help you set up Pension Salary Exchange if you don’t already offer this, alongside benefit consultancy on any employee benefit you may be considering.

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