Are your employee benefits damaging your wealth?

We are seeing a huge number of new entrants to the employee benefits arena offering free cups of coffee, watches etc. This has led to an upsurge in employers putting in new benefits for employees to help and recruit and retain employees… But at what cost?

Before we start, it is great news that, at long last, employers are looking at benefits in a positive way rather than the last agenda item in a meeting!

Now the challenge, who do you choose to be your benefits advisers? They are not all created equal and trusting the wrong one can seriously impact on your employees’ future!

Many advisers often only look at a very limited range of financial products such as Private Medical Insurance, but also do Group Life Assurance for Death in Service provision) and Income Protection as a supplementary product not really knowing what the impact of these could be on employees.

Let us look at the most common, Group Life Assurance. This is seen as the simplest benefit and is often put in place without an understanding of the damage it can do and how it can impact on pension planning.

There are several key areas which the adviser must explain before advice is given:

Lifetime Allowance: if the scheme is set up as a Registered Scheme, in the event of a claim, the value is added to a person’s pension value. If this exceeds the Lifetime Allowance, a charge tax of 55% is levied on the excess, payable by grief-stricken relatives left behind.

Pension Protection: when a new scheme is put in place it is easy to set it up on the basis of ‘all employees’ without considering the implications of this. Not only can it take people over the Lifetime Allowance, but critically if any member has taken out Transitional Protection (e.g. Fixed, Individual, Primary or Enhanced), this one simple move could lose this protection costing thousands of Pounds and destroy years of careful pension planning.

Master Trust: this device, to make the management of the scheme easier for the employer, is one of the success stories of recent years, but they have a sting in the tail when an insurers trust has been used. This is because the trust only applies for a specific insurer, which means if that insurer becomes more expensive than others, a new trust is needed to change provider. This does mean the checks for Pension Protection need to be done again.

Excepted Schemes: often seen as the magic pill as benefits are held outside the traditional pension trust, meaning they do not count towards the Lifetime Allowance. Again, without careful planning more problems can be created. Insurers need an eligibility definition usually for ease it is based on salary, but if a person’s earnings fall then they could inadvertently re-join the Registered Scheme and lose pension protection!

Excepted Schemes: the inexperienced adviser may try to put all employees in the scheme which might cause issues with HMRC (not advisable!) or increase the risk of a tax charge on 10th anniversary revaluation of the trust, either with an unsettled claim or the existence of a potential claim for a terminally ill member.

The solution to these issues is to use an adviser who can offer advice across all areas of benefits and understand how they interact. At Prosperis, we have a dedicated Employee Benefits division working alongside pension specialists to ensure the benefits are structured in the most tax efficient manner, often using individual Relevant Life policies for employees with Pension Protection and Lifetime Allowance requirements.

Please call 01423 223640 or email us below for a free, no obligation consultation with a member of our expert team.