How to make your workplace benefits package work for all employees
A benefits package for all employees.
We believe that a pension scheme is the foundation stone of a workplace benefits package. We would wouldn’t we, we’re pension scheme providers. But you don’t have to take our word for it. According to independent research carried out for Aviva 76.8% of employees saw the company pension as an important or very important consideration when choosing a new employer.
That’s a huge proportion of employees, but people don’t have a single priority. When it comes to their finances different people prioritise different things. This was revealed to us in the results of a survey we commissioned toward the end of 2019, when we asked people for their top 3 financial priorities 1.
For those workers aged over 56 it comes as no surprise that retirement saving was their top priority by some distance, over 59% placed it in their top 3. The next most common priority for this age group was funding day to day expenses at 34% of respondents, and saving for a rainy day at 32%.
Pensions were also top priority for those aged 46 to 55. Over 42% included it in their top 3. Day to day expenses (38%) and supporting children (30%) came second and third.
When we get to the 31 to 45 age group retirement saving drops to 7th place. Supporting children (41%), day to day funding (37%) and paying off debt (34%) are the top three, perhaps illustrating increased financial pressure on this group.
Our youngest group see buying a home (34%) as number one priority. Day to day funding (33%) and saving for a holiday (30%) occupy the next two spots. What’s interesting about this group is also the range of priorities. There’s no absolute stand out. Paying off debt, rainy day saving and supporting children all score above 20%.
While supporting parents (12.5%) and buying a car (12.3%) come close to retirement saving (12.75%) for this group.
While we could spend a lot of time looking at this and other demographic data, the real message is we’re all different. If you want to help your employees reach their financial goals, with the attendant gains in terms of wellbeing, it makes sense to look at a range of benefits beyond the workplace pension.
At Aviva we’re able to offer a stocks and shares, a cash ISA and a general investment account to allow your people to save in a way that suits them best. Whether they’re a high earner looking for a tax efficient alternative to pension once their limits are exceeded, or younger workers saving for anything from a rainy day to a holiday in the sun.
Make the most of pension contributions
For all employees, their benefits package is about what suits them best. For many, making contributions into their pensions will be important.
All taxpayers get tax relief from the government on pension contributions. For basic rate tax payers, a reduction in take home pay of £80 will see £100 invested in their pension.
For higher and additional rate tax payers the cost of £100 invested in their pension is £60 and £55 respectively.
Employer pension contributions are also tax free, but they don’t attract National Insurance Contributions either. By implementing a salary sacrifice arrangement you can save employees between 2% and 12% of their pension contributions, while reducing your costs by 13.8% of the pay your employees sacrifice. You can either keep the saving or pay it into your employees’ pension pots as an additional employer contribution.
With such generous tax breaks, it’s no surprise that HMRC limit the amount that can be paid into a pension each year through an annual allowance. Any amount paid in over the annual allowance is essentially taxed like income. It’s really important that higher earners don’t get caught out with an annual allowance charge as it means the overall taxation of the pension can be punitive. Full details can be found at gov.uk.
On top of that, we all have a lifetime allowance this is the maximum amount anyone can take out of a pension without paying an additional tax charge, known as a lifetime allowance charge. For details of the lifetime allowance please visit gov.uk.
A stocks and shares ISA works well for some
For those saving over a longer term a stocks and shares ISA might be an appropriate savings vehicle. Every UK resident aged 18 and over can take out a stacks and shares ISA. The investment limit is currently £20,000, but the growth and income from a stocks and shares ISA is free of UK tax.
It’s possible for an employee to set up payments from payroll into an ISA with Aviva, which might make saving that little bit easier for those struggling to save.
For higher earners who’ve used up their pension allowances, a stocks and shares ISA provides an opportunity to immediately invest any cash benefit you pay to them in lieu of employer pension contributions.
Younger members of your workforce are another demographic that might appreciate a stocks and shares ISA, although we need to take care that payments to ISA don’t incentivise employees to opt out of your pension, and that you point out that a Lifetime ISA might be a valuable alternative for those saving for a first home.
For employees expecting to move up to a higher tax bracket. Instead of making pension contributions immediately, they can build up money in an ISA and move it into their pension when they begin to pay higher rate tax. By doing that, they’ll benefit from the higher rate of marginal tax relief. They need to take care that they don’t miss out on any employer matching pension contributions by doing this however.
If you add a stocks and shares ISA to your employee benefits package, your employees will benefit from a group charge. This is likely to be lower than individual ISA charges.
A cash ISA can double as an emergency fund
It’s a good idea for everyone to build up a pot of money for emergencies, particularly lower-paid workers. These are the people who may not have spare cash to deal with the occasional curve ball life throws at us all.
You can add a cash ISA to your employee benefits package, which is an easy way for UK resident employees aged over 16 to build up their emergency fund or save for a short-term goal like a holiday. Importantly it can avoid employees relying on high cost credit, which can be difficult to escape.
Employees can make payments via payroll in the same way as for a stocks and shares ISA.
A general investment account could be a cost-effective solution for higher earners
There may be some employees who’ve exceeded their tax efficient savings allowances but who still have unused capital gains allowance or dividend allowance. These allow an individual to benefit from tax free growth on investments held outside an ISA or pension.
A general investment account provides employees with the opportunity buy, sell and hold investments and make the most of these annual tax-free allowances.
Help your employees feel more financially secure
It’s relatively easy to help your employees get to a better place financially. Making payments into financial products from payroll means your employees won’t miss the money because it never hits their bank account. It makes it easier to save and invest to help achieve the goals they’ve chosen.
And as well as being a practical help, giving your employees more financial security also helps improve wellbeing potentially reducing stress and the potential for long term absence.
Improved financial health is good for you, your employees and your business.