New tax year, new changes – Robert Smith, Finch Employee Benefits

Changes affecting pensions


1.Money Purchase Annual Allowance reduction

If an employee flexibly accesses (disinvests money to provide an income) their pension, the main tax benefits associated with future contributions to their pension scheme are now limited to £4,000 pa. If contributions of more than £4,000 pa are paid the member will need to declare this to HMRC and pay tax on the surplus.


How does this affect me?

As pensions can only normally be accessed by anyone 55 or older, this is only relevant to that group. As their employer you may not know if they are impacted. Advertising this rule to over 55s is helpful to aid them with their own financial planning.

See https://www.gov.uk/tax-on-your-private-pension/annual-allowance for more information.


2. Pension Advice Allowance

From April 2017 everyone will be able to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice. The new Pension Advice Allowance will enable people of any age to spend up to £500 per tax year on up to three occasions from their pension pots, tax-free, on pensions and retirement advice. In addition, employers can also fund employees’ financial advice more generously, the new limit is £500 (£150) per employee per tax year.


How does this affect me?

Most schemes permit this flexibility. Adviser fees facilitated through individual arrangements will continue where in force. All employers are eligible to contribute towards advice for their employees. The money must be put towards general financial and tax issues relating to pensions.


3. Qualifying Earnings definition changes

If you have a workplace pension plan and pay contributions in line with Qualifying Earnings, the amount you and your workers pay into your workplace pension scheme may need to increase from 6 April 2017.

Please refer to this website: http://www.thepensionsregulator.gov.uk/automatic-enrolment-earnings-threshold.aspx for more information and details.


How does this affect me?

If you currently pay contributions in line with Qualifying Earnings, also known as minimum compliance, it would be considered good practice for employers to advise affected employees of these revised definitions in a proactive manner. Finch are pension specialists and can help with all of your automatic enrolment needs, from implementation through to ongoing management, consultancy advice, support and communication.


Change potentially affecting Group Income Protection policies


Abolition of the Work Related Activity Component (WRAC)

Some Group Income Protection schemes currently settle claims after deducting an allowance in respect of both the Employment Support Allowance and WRAC. Insurers are no longer able to deduct WRAC, meaning that claims payments are likely to be slightly higher.


How does this affect me?

This may lead to higher policy premiums, and will affect the detailed terms and conditions which should be communicated to affected members. Different insurers take different approaches to this change. Please speak to Finch if you would like an independent review of your scheme or would like talk about how introducing a Group Income Protection Policy may benefit your business and its employees.


Changes to salary sacrifice arrangements


Updates to rules around what can be funded through salary sacrifice arrangements

From 6 April 2017 the tax advantages associated with using salary sacrifice to pay for computers, mobile phones and car parking are being removed. Salary Sacrifice can, however, continue to be used to fund:

  • Employees’ pension contributions
  • Childcare vouchers and workplace nurseries
  • Cycles and related safety equipment (cycle to work schemes)
  • Leasing of ultra low emission vehicles

in as tax efficient a manner as prior to 6 April 2017. Transitional rules apply to current contracts but new contracts must adhere to the new rules immediately.


How does this affect me?

The most popular use of Salary Sacrifice is to fund employees’ pension contributions whilst saving tax and national insurance (NI) for the employee at their marginal rates and NI for the employer. This remains a sensible approach and should be considered by all employers. Finch would be happy to support with any analysis and implementation desired.


Tax-Free Childcare


Introduction of a new Government sponsored childcare savings

The Government will introduce a ‘Tax-free Childcare’ saving scheme from 28 April 2017. This will provide parents with children under 12 with up to £2,000 a year per child to help cover childcare costs. If the child is disabled the limit is £4,000 per year, until they are 17.


How does this affect me?

As this is a new product (available from 28 April 2017) you may wish to compare any current arrangement with the Tax-Free Childcare scheme. With 25% extra being added by the Government the new scheme is very attractive. A parent earning between £6,240 and £100,000 per year is eligible. Finch are very happy to support clients with a review and communications exercise.

See https://www.gov.uk/government/news/tax-free-childcare-top-things-childcare-providers-should-know for more information.

If you have any questions, please contact Robert Smith on 0161 242 4324 or e-mail robert.smith@fincheb.co.uk 


Whilst all efforts have been made to ensure that the information in this update is accurate, this information is based on our understanding of current regulations and is for general information purposes only. It is not intended to constitute specific financial advice and you should always take appropriate independent financial advice before taking any decisions relating to financial products. Authorised and regulated by the Financial Conduct Authority.