The number of people in work in the UK stands at a record high and the unemployment rate is at its lowest since 1975. Consequently there is a ‘war for talent’ as employers seek to stand out from the crowd to attract and retain the best staff. Speaking at a recent event, Pareto Financial Planning’s Alan Makinson said employee benefits have become a key part of this changing landscape. Alan, who leads Pareto’s dedicated employee benefits team, gave a presentation at a summit organised by accounting and business advisory firm HURST at its offices in Stockport.
Pareto has partnered with HURST to provide entrepreneurial clients with an additional financial planning service. The event was for HR and finance professionals seeking to find out more about the benefits available, how they work in practice, and how companies can improve the productivity of their workforce.
Alan updated the audience on the sector as a whole while also speaking about the opportunities and potential pitfalls regarding employee benefits.
He said companies are now offering more and improved benefits, including those which focus on employee wellbeing, while at the same time jobseekers are increasingly expecting an attractive package when considering a new role. Employee benefits are regarded as a key element of efforts to retain, reward and attract staff as well as looking after the workforce, said Alan.
“There is a war for talent. As a result, employers are using benefits to stand out from the competition,” he told the gathering. Alan added that employers increasingly recognise a link between staff wellbeing and productivity and many have introduced a range of perks which reflect this concern.
However, traditional benefits such as workplace pensions are still viewed by employees as the most valuable, ahead of benefits such as childcare vouchers, private medical cover, life insurance, cycle-to-work incentives, gym membership and retail or leisure discounts.
Alan, who has more than 30 years’ experience in the sector, said companies often neglect reviewing the benefits they have in place, and he cited several examples which demonstrate the importance of a regular review.
Group life insurance scheme. This provides a lump sum death benefit, typically as a multiple of salary. It is a low-cost, high-value benefit. Pareto’s case involved a director with pension benefits worth about £300,000 who is a member of the company’s death-in-service scheme, with cover of £1m. Should he pass away, the total of these benefits would be tested against his lifetime pension allowance of £1.03m. Therefore, his benefits would exceed the limit by £270,000, which would incur up to a 55 per cent tax charge , leaving his family facing a tax bill of up to £148,500.
Pareto’s solution was to alter the existing death-in-service scheme to an ‘unapproved ’ scheme which would not be tested against the lifetime allowance. This would mean only the director’s pension benefits of £300,000 would be tested against the lifetime allowance.
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Group income protection. This is designed to provide an income to employees in the event of long-term illness or injury. This case involved an employer who offered this benefit to all staff, but questioned its cost and value. The package involved offering 50 per cent of an employee’s salary minus long-term state incapacity benefit. The policy was costing the employer £11,000 a year. Pareto’s solution was to revise the level of cover, rising to 60 per cent of salary for managers. The deduction for state incapacity benefit was removed. A fixed term of two years’ cover was introduced for non-managerial staff. These measures were possible with no change to the annual cost of the policy.
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Private medical insurance under a group policy which provides cover for all employees. This case involved a national firm with over 300 staff. Its policy was due for renewal with an annual premium of £276,000, and the company came to Pareto for advice and assistance. Brokering the policy found that the most competitive provider would charge £247,000, so we informed the existing provider who immediately reduced its premium to £230,000. The alternative provider revised its quote to £215,000 and our client switched to them, saving £61,000 on the premium which had been quoted initially.
This highlights the value of a market review and advice. The brokering process is very common and is good practice.
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Alan also highlighted changes to minimum pension contribution rates which come into force in April. He urged employers to regularly review their pension costs and their providers, and to consider salary sacrifice schemes to achieve savings. He also urged the audience to review their traditional employee benefits, and spoke about the importance of providing financial education to staff.
There is a growing desire for financial education in the workplace, which can help reduce stress and increase motivation. It helps staff to understand the value of the benefits on offer, and the impact on them, said Alan. Adam Hogwood, of employee benefits provider Caboodle Technology, also spoke at the event.
We have a specialist employee benefits team spearheaded by experienced EB consultant Alan Makinson.