Employee benefit services

Employee benefit services

Summary of Moore Kingston Smith Financial Advisers’ employee benefit services:

Pensions including auto-enrolment

Pensions are compulsory under auto-enrolment regulations. A good pension scheme is an excellent tool for employee retention and reward. Schemes where the employer contributions are higher than the statutory minimum, of course, have the competitive edge.

Often seen as complex and confusing, pensions should fit the specific requirements and demographics of each organisation. A reliable benchmarking review against sector and market is a good first step.

Choosing the right structure is key, as is getting impartial guidance on the investment options, which applies to both employer and employees. If employees need help with alternative options, they should get specialist financial planning advice. A good pension consultant can also give guidance on legislative issues.

Pension contributions are a tax-deductible expense for the employer. The employee usually receives tax relief on their contributions. National insurance relief may also be available for both employer and employee if pension contributions are paid by salary sacrifice.

Group life assurance (also known as group death in service)

In the event of an employee’s death, this pays a lump sum to beneficiaries, usually their spouse or children. It is either a fixed monetary amount or a multiple of basic salary. It is set up under a discretionary trust, so the sum assured is paid outside the probate system. This means it is not liable to inheritance tax.

Premiums are a tax-deductible expense for the employer and a non-taxable benefit in kind for the employee.

Group income protection

In the event of long-term incapacity following illness or injury, the employee receives a continuing income. It takes over from an organisation’s standard sick pay arrangement. It pays a percentage of the employee’s salary monthly for a specific duration or until a certain age. It can also cover pension and national insurance contributions.

It can include an absence management service and rehabilitation support during the employee’s recuperation. The benefit is paid gross to the employer, with the employee then paid via the PAYE system, minus tax and national insurance contributions.

Premiums are a tax-deductible expense for the employer and a non-taxable benefit in kind for the employee.

Group critical illness

In the event of a serious, life-threatening illness, an employee receives a tax-free lump sum – either a fixed amount or a multiple of their salary. The payment is triggered when an employee survives for a specified period. This is regardless of the employee’s ability to continue working or recovery duration.

Each insurer defines the medical conditions covered which include the most serious conditions, such as cancer, kidney failure and heart attack. Employers can choose to include extra conditions.

Premiums are a tax-deductible expense for the employer and a taxable benefit in kind for the employee.

For group life assurance, group income protection and group critical illness, unless otherwise specified, no medical evidence is required up to a specified limit – the free cover limit. Large-value free cover limits are available even for small memberships and underwriting is required for cover above this limit.

The cost of premium depends on the level of cover, employee age profile, location and industry. For schemes with fewer than ten members, it is calculated on an age-rated basis, meaning the risk rating is different for each member. Larger schemes work on a unit-rated basis and the risk rating is the same for each member.

An employee assistance programme (EAP) is often provided as a no-cost additional benefit for the above services.

Group private medical insurance

This covers the associated costs of private medical treatment in the UK. Employers can tailor the product to make it as comprehensive as possible, covering a wide range of GP-referred medical treatments.

A choice of underwriting is available, affecting whether pre-existing health conditions are covered. The cost of premium is usually calculated on an age-rated basis, meaning it increases as a member ages. Additionally, membership size can affect the premium rates, with larger schemes sometimes obtaining lower rates. The employer can tailor cover levels to meet their requirements and budget.

Premiums are a tax-deductible expense for the employer and a taxable benefit in kind for the employee.

Contact Employee Benefits Consultant Paul Beck on 020 7566 4031 or pbeck@mks.co.uk for more information regarding employee benefit services.

National Insurance savings

Mitigating the impact on employers and employees

In April 2022, National Insurance contributions (NICs) rose by 1.25% for both you as an employer and your employees. This will clearly affect your business and your employees’ take-home pay.

However, you can reduce the impact of the extra NICs by implementing a simple savings scheme. Pension salary exchange, also known as salary sacrifice, is a legitimate and simple way to reduce National Insurance costs for both you and your employees. With pension salary exchange, employers pay their employees’ workplace pension contributions directly. These contributions are deducted before tax and NICs are paid. This means that both you and your employees pay out less in NICs. Employers may retain ALL, SOME or NONE of the savings in NICs. You could use these savings to pay additional pension contributions to enhance employees’ pensions or fund other employee benefits. The choice is yours.

What does this mean for you as an employer?

Employers pay NICs on employee annual earnings above £8,840 (increased to £9,100 in April 2022), currently at a rate of 13.8%. In April 2022, it becomes 15.05%. Without exact payroll figures and pension contribution rates, we can only give a guide as to the increase in NICs and the amount you and your employees could save through pension salary exchange.

Figure 1 – examples of potential savings for employers 
All figures are approximate and effects are per annum.

 

 

What does this mean for your employees?

Employees aged 16 upwards earning £9,568 a year or more (increased to £9,880 in April 2022) pay National Insurance. This qualifies them for certain welfare benefits and the State Pension. Currently, this is at a rate of 12% on earnings between the primary threshold (£9,568) and upper earnings limit (£50,270); and 2% on earnings over the upper earnings limit. In April 2022, it becomes 13.25% and 3.25%.

Figure 2 – examples of how the 1.25% rise affects a range of employee salaries
All figures are approximate and effects are per annum.

 

 

Moore Kingston Smith has the expertise to implement your entire pension salary exchange process for you. This includes employee communication and education. It is a valuable savings tool that most employers and employees should be taking up.

If you would like to find out how to reduce the impact of the NIC rise with pension salary exchange, please contact Employee Benefits Consultant Paul Beck on 020 7566 4031 or pbeck@mks.co.uk. Alternatively, fill in the contact us form and Paul will give you a call.

 

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