What the benefits providers and specialists have to say about the Budget statement
The Lifetime ISA announcement has drawn mixed reactions – from those who feel it is a real chance to encourage younger people saving for the future, to those who believe it will cause opt-outs from workplace pension schemes.
Eleanor Daplyn, partner, Sackers: “We welcome the Chancellor’s continued focus on incentives to save and freedom and choice. We are pleased to see that he has decided not to change the current system for pension tax relief at this time, in response to feedback from the pensions industry which emphasised the need for careful planning and implementation for any change.
“The introduction of a new Lifetime ISA for the under 40s is a helpful initiative which addresses generational pensions inequality. Together with the new Pension Dashboard, which the Government hopes to introduce by 2019, we are confident this will encourage more people to start saving for their retirement at an earlier age.”
Patrick Bloomfield, partner, Hymans Robertson: “It [the Lifetime ISA) could be a forerunner to the end of pensions as we know it. It’s essentially a new pension regime through the backdoor and the first step on the path to a pensions ISA for all.
“In the short term, employers will need to create parallel systems for the over and under 40s. However, employers that get in there first and do a good job of supporting Lifetime ISAs will undoubtedly gain a competitive edge in the battle for talent. Not only that, they’ll be in a strong position when it rolls out and becomes the norm for long-term saving.”
Steven Cameron, pensions director, Aegon: “There is a huge risk that the LISA will encourage some under 40s to turn down the opportunity to be auto-enrolled into a workplace pension, even though that comes not only with the equivalent 25% Government bonus on personal contributions, but also with an extremely valuable employer contribution. Employers will not be allowed to pay into LISA. The self-employed don’t benefit from an employer contribution so LISA may suit them, and encourage earlier engagement with retirement savings.
“Given the housing challenge young people face today, anything which ‘helps to buy’ will be attractive, but it also creates the real risk that LISA will rarely be used for retirement savings and instead we’ll see accounts depleted as soon as they have built up enough to pay a house deposit. If that happens, and contributions to other pensions have ceased, we’ll have a generation even less prepared for retirement, and who may end up reliant on state pensions which of course are paid by the next again generation. That doesn’t seem consistent with the ‘next generation’ focus.”
Financial education and advice
While the fallout of the consolidation of MAS, TPAS and Pension Wise yet to be seen, experts are hoping that it at least indicates a Government desire to streamline pensions guidance and advice for the wider workforce.
Malcolm McLean, senior consultant, Barnett Waddingham: “Hopefully the provision of a new pensions guidance body will streamline the service and enable consumers to receive answers to their pension queries in one place at all stages of their lives.
“The Government has also indicated its intention to have a Pensions Dashboard up and running by 2019 to allow individuals to view all of their retirement savings in one place. This is very desirable and should make consumers better informed and enable them to cover shortfalls in their pension provision with more confidence.
“The Government has also committed to implement all the recommendations of the recent Financial Advice Market Review (FAMR) which again underlines their determination to make advice and guidance services work to better effect than previously.”
The decision not to abolish salary sacrifice has been met with some relief – although there is still a question mark over what will and won’t be included, which needs to be resolved quickly for providers.
Paul Waters, partner, Hymans Robertson: “The confirmation that pension salary sacrifice is not to be targeted will be of great relief to private sector employers in the UK, who could have seen a material hit in pension costs had Osborne chosen to act.
“The decision to grant a similar status on childcare and bikes is unsurprising, given they are supportive of social policy and low cost to the Government.
“The Government’s rationale in targeting salary sacrifice for wider benefits is less compelling. The tax and National Insurance savings generated on most other salary sacrifice benefits offered by employers are relatively modest. From a policy perspective, the Government should not care whether employees can choose to buy an extra week off to get married for example!”
Steve Edgell, chair of the Cycle to Work Alliance and director of Cycle Solutions: “This is a very welcome announcement which recognises the ongoing success of the Cycle to Work scheme, and confirms the key role that it has to play in promoting employee health and wellbeing. The scheme is a proven mechanism for increasing participation in cycling and achieving behavioural change. We are delighted that this has been recognised”.
Iain McMath, CEO, Sodexo Benefits and Rewards Services: “It is encouraging to see that today's Budget offers some level of clarity over the upcoming childcare changes in the UK, but these changes won’t necessarily benefit all working parents.
The Budget confirms that Tax-Free Childcare (TFC) will begin rolling out in early 2017, with all eligible parents brought in by the end of 2017. TFC has been designed with the intention of saving parents up to £2,000 per year, but in reality, the average saving has been estimated at just £600 - with 66% of households estimated to be worse off under this new scheme, according to a recent study by Sodexo Benefits and Rewards Services. Furthermore, 58% of working parents feel they know very little, or even nothing, about TFC.”
Andrew Leech, managing director, Fleet Evolution: “The Government have accepted that salary sacrifice is a valuable benefit and have confirmed the first raft of benefits they agree with. As salary sacrifice cars are a taxable benefit we feel the scheme has a net positive impact on the Exchequer and we are confident they will see the value in salary sacrifice cars once they review the scheme fully. How long this will take is of course another question – and we would suggest the length of time taken so far reflects the Government’s genuine concern on schemes.”
Healthcare and IPT increases
The increase in IPT has been met with disappointment in the industry, with concerns about the costs employers may now face in keeping their workforce healthy.
Jonathan Burton, CEO, Health Shield: “We welcome the Chancellor’s efforts to improve flood defences, however when combined with the previous increase in Insurance Premium Tax policyholders could be looking at a 66% combined increase in less than a year for policies that help families pay for day to day healthcare costs, such as dental care. The combination of 10% IPT and a 5% increase in NHS dental scale charges for 2016 and 2017 will be factors affecting the cost and usage of cash plans for both employers and voluntary members alike. The market will need to consider whether regular IPT increases are likely to become the norm.”
Simon Griffiths, principal, head of strategy and commercial development, Mercer Marsh Benefits: “The further increase in IPT will increase the number of companies looking to transfer from an insured medical benefit programmes to a medical benefits trust. Whilst a transfer to a trust is an option available to clients, companies should first work to understand and engage their employees in managing their risk through analysis and insight on the data already available.
“This approach will help to manage the long term risk factors associated with all aspects of employee wellbeing, which would then provide a more stable long-term risk making the option of a medical benefits trust more viable for a wider range of organisations.”