1st February 2017
Many employers now offer their staff great methods of saving, with valuable tax breaks and discounts, but a number of key changes are due to come in that individuals should be aware of.
WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, have outlined below some of the key changes coming up.
- Salary Sacrifice – This arrangement is where an employee gives up part of their salary in return for non-cash workplace benefits. The Government have announced from April 2017 it is limiting the range of benefits which can be bought using Salary Sacrifice, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow 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 which from April, will no longer be available through Salary Sacrifice. Individuals will have to understand how these changes affect them as their costs will be higher for these benefits in the future.”
- 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 Child Care Voucher system can continue in it, providing their employer will 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 20p for every 80p 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 comments, “Whether you are better off with the old or new scheme depends on how much you earn, how much you spend on qualifying childcare and how old your children are. There will be no NI saving under the new system, therefore employed parents with lower childcare cost could be worse off. However, it is available to everyone, so is good news for those who work for companies that don’t offer the voucher system and the self-employed.”
- Financial Advice – New initiatives may be introduced to help individuals pay for 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 comments, “Combined these two savings could give individuals 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 out-weigh this cost, so taking fully regulated advice could save money in the long run whilst 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 which will be subject to a 5% penalty charge.
Watts-Lay comments; “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.”
He concludes, “Company perks are no longer just about pensions. With so many options now available, financial education, guidance and advice is essential to understanding what is available to employees, as well as what can be achieved through workplace saving. The workplace holds really valuable benefits. I urge individuals to speak to their employer to find out what benefits they offer and how these are changing.”
The latest news is brought to you by WEALTH at work*, a specialist provider of financial education and guidance in the workplace.
*WEALTH at work and my wealth are trading names of Wealth at Work Limited which is a member of the Wealth at Work group of companies.