Image for Erosion of salary sacrifice would hurt employer benefit strategy

Nearly three quarters of businesses believe they will have to rethink their benefits strategy in the future

Nearly three quarters, 71 per cent of delegates polled at its salary sacrifice seminar felt they would have to rethink benefit strategy as a result of the changes announced in the Autumn Statement, according to research from Aon Employee Benefits. Seventy-one percent also felt that the erosion of salary sacrifice would impact benefits negatively.

The post-Autumn Statement seminar, timed to answer questions on the long-anticipated salary sacrifice changes, was held for 88 HR and reward professionals at Aon’s London headquarters.

Jeff Fox, principal at Aon Employee Benefits, thinks that in the past, we’ve found relevant details in the technical statement afterward the Autumn Statement, but this year, salary sacrifice benefit strategy was highlighted in the televised speech, and even mainstream media commented on individual impacts.

Fox adds, ‘Perhaps not surprisingly, there has been commentary on the ‘death of salary sacrifice’, but this is inaccurate on a number of levels, not least because the existing treatment of pensions, childcare vouchers and bicycles remain unchanged.

‘Pension alone normally accounts for 80 per cent of an employer’s salary sacrifice savings, so in its current form it remains a useful vehicle for savings. After the seminar, 61 per cent of respondents said the Autumn Statement changes were not as great as they thought, but they do need to plan for them.’

Salary sacrifice to improve savings

However, the changes mean that employers will no longer save National Insurance when an employee elects to sacrifice cash for benefits such as health screenings or additional life assurance (on top of that funded by the employer direct), and employees will be taxed on these for the first time.

Computers, mobile phones, car parking and in-house gyms will all lose their full or partial tax exemption. Further ahead, there will be significant changes to company cars, which will have a large impact on employers and employees who utilise the current advantageous arrangements.

Martha How, principal at Aon Employee Benefits, further explains, ‘A second argument for salary sacrifice remaining a powerful benefits delivery mechanism is because there is a whole tranche of benefits where employees currently pay tax but save NIC. The Autumn Statement proposals leave the employee National Insurance savings intact.’

These benefits include private medical insurance, dental insurance, travel insurance and will also include health screenings, life assurance and income protection insurance.

How concludes, ‘The fact remains that salary sacrifice will continue to deliver significant employee National Insurance savings, based on current proposals, while employers will still benefit from the big three – pensions, childcare and bikes.

‘Now is a good time to re-assess benefits strategy, but closing salary sacrifice schemes for most benefits would reduce the real value of a benefit strategy in the hands of employees.’

Further reading on salary sacrifice

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