View our pension update for this quarter below.
Are bicycles more important than life insurance?
The government seems to think so.
New rules that came in on 6 April 2016/17 seek to put paid to most forms of salary sacrifice where employer and employee previously enjoyed tax and NI savings as a result of an employee opting for an employer-provided benefit and a reduction in salary. Company cars, free or low cost accommodation and school fees are understandably in the Government’s sights
What is more surprising is that in targeting any form of optional remuneration arrangement (with only a short-list of exemptions – pensions, childcare, cycle-to-work and ultra-low emission cars), traditionally bona fide life insurance and income protection schemes have become potentially taxable benefits.
This will arise where employees can choose to join or increase their own level of cover via an optional flexible remuneration package and applies to a relevant life insurance policy, excepted group life insurance or an income protection scheme (those that provide an income should an accident or ill-health prevent an employee from doing their job for a long period).
Excepted group life insurance is increasingly popular as a means of dealing with the lifetime allowance which caps at £1m the tax free lump sum death benefit from a traditional death in service scheme, when aggregated with the individual’s pension funds; 55% tax being charged on the excess over the allowance. The lump sum death benefit paid from an excepted scheme does not count towards the lifetime allowance.
Those who have secured a higher lifetime allowance via certain forms of fixed or enhanced protection will lose this on joining a traditional death in service scheme and, so, turn to an excepted scheme to provide protection for their dependants.
"Relevant" life insurance is effectively the individual policy equivalent of an excepted group scheme.
The core employer sponsored level of cover is not a taxable benefit; only where the employee is able to opt for more cover will tax and NI charges arise.
Auto-enrolment spot checks
The pensions regulator recently announced it will undertake spot checks on employers to ensure that they are complying properly with their auto-enrolment duties. The Regulator acknowledges that overall compliance is "in the high 90s", that workplace pensions have become the norm and has rarely resorted to the financial sanctions at its disposal for persistent offenders.
The spirit of the spot checks appears to be information gathering and a genuine desire to help employers do the job properly. Even so, this announcement makes clear that auto-enrolment cannot be ignored.
For more information please contact Mark Abbs.