Why 2017 will be a challenging year for workplace pensions
2017 looks set to be a bumpy ride for workplace pension propositions, warns Tom Nall, before going on to outline some of the more nuanced angles of which advisers should be aware
It appears, at long last, that I am beginning to be able to multi-task - that is, if listening to the Pensions Regulator and having kittens at the same time counts as multi-tasking. It turns out I am also generous, as I find myself worried on behalf of the half-million or so employers and their payrolls that are going to be swept up in the biggest year for pensions since records began.
These fears are, however, perhaps as well-known as they are well-founded so, in this article, I would instead like to outline some of the other more nuanced areas covered at the workplace masterclass events I have been running across the UK, supporting advisers shape and accelerate their workplace propositions.
Let's look at the challenges of re-enrolment, and the changes to salary exchange benefits arriving in 2017. You will be aware of ‘cyclical automatic re-enrolment' - also known as ‘CARE' - which applies at an employer's ‘cyclical automatic re-enrolment date' (that's right, ‘CARD'), based on the three-year anniversary of staging with the flexibility to move the date forward or back by up to three months.
What is less well-known is that there are complexities, such as only having one re-enrolment date despite the number of payrolls the client is running, and that postponement cannot be applied, which create headaches in payroll and conflicts in pensions that can be terminal unless all parties know how to manage enrolment and re-enrolment processes concurrently.
It is critical to find out whether payroll and pension providers' technology can handle these processes, and that the client has identified when the most suitable CARD for them.
This time next year, we will see employers down to around 60 employees reaching their CARD, so we are well into the SME market - and before many accountancy and payroll firms have even begun to stage the majority of smaller clients.
Recent research from Sanctum software, which audits employers for auto-enrolment compliance, found that 26% of those audited had material breaches that had led to employee detriment - mainly due to failures in communication, postponement and calculation of contributions. There will be practices that are managing both sets of clients simultaneously and any issues will snowball if not pre-empted and avoided or rectified as soon as possible.
When reviewing pension arrangements and wider benefits, it is worth understanding what the potential value of salary exchange may be. This is where employees give up salary in exchange for a non-cash benefit, such as pensions, and both they and the employer benefit in terms of reduced National Insurance, while employees may also see a reduced tax bill.
While pensions have been identified as a ‘good' salary exchange benefit, there are areas such as company car schemes that are currently under review.
An unintended consequence may be that the current benefit-in-kind calculations based on book value and emissions (which make green car schemes so attractive) now look at the pure cash value of the benefit, which may have the effect of reducing participation in car schemes generally and eco-friendly models specifically. These changes could be in place as soon as April 2017 and will be a hot topic with affected employers.
If you are helping a client review their benefits, you will need to be aware the current childcare voucher scheme is being phased out, with the new Tax-Free Childcare in place from April 2017. There are some crucial differences, such as the new scheme only applying where both parents (where applicable) are working, and ultimately only running up to 12 rather than the current scheme's 15 (16 if registered disabled).
More positively, the new scheme will be available to the self-employed, but for employers they need to offer both schemes and ensure employees understand which is best for them. Interestingly, under the current arrangement - handled by employers - the employer saves 13.8% National Insurance on the salary exchanged, whereas the new scheme will be managed by employees and does not confer this benefit.
Employers have until April 2018 to get the current arrangement set-up and employees must be using the scheme by April 2018 to regain access to it until their children reach 15 (or 16).
What connects these areas is that advisers must work effectively with accountants and payroll to ensure a duty of care to employer clients. This creates a fantastic opportunity to protect and grow your existing partnerships, and delivers a great door-opener for new client conversations.
Tom Nall is workplace solutions director at SimplyBiz Group