Aon: Salary sacrifice ‘still powerful’

Benefits - thumbnailSalary sacrifice remains a powerful benefits mechanism for employee and employer savings despite the Chancellor’s Autumn Statement attack on the strategy says Aon Employee Benefits.

The changes unveiled in the Autumn Statement mean that employers will no longer save National Insurance when an employee elects to sacrifice cash for benefits such as health screenings or additional life assurance, on top of that funded by the employer direct, and employees will be taxed on these for the first time. Computers, mobile phones, car parking and in-house gyms will all lose their full or partial tax exemption. Further ahead, there will be significant changes to company cars, which will have a large impact on employers and employees who utilise the current advantageous arrangements.

Aon says losing schemes would reduce the value of most benefits, but employee NI can still be saved for private medical insurance, dental insurance, travel insurance and will also include health screenings, life assurance and income protection insurance. Pensions, bikes-to-work and childcare vouchers are not affected by the changes.

In a poll of nearly 90 HR/Reward professionals at an Aon post-Autumn Statement event, 71 per cent felt the erosion of salary sacrifice would impact benefits negatively and the same percentage also believed they would have to rethink benefits strategy in the future.

Aon Employee Benefits principal Jeff Fox says: “Employee benefits are not a subject usually discussed in the Budget or Autumn Statement. In the past, we’ve found relevant details in the technical statement afterwards, but this year, salary sacrifice benefits were highlighted in the televised speech, and even mainstream media commented on individual impacts. Perhaps not surprisingly, there has been commentary on the ‘death of salary sacrifice’, but this is inaccurate on a number of levels, not least because the existing treatment of pensions, childcare vouchers and bicycles remain unchanged. These are among the most popular salary sacrifice benefits and deliver the greatest value to employers and employees alike.

“Pension alone normally accounts for 80 per cent of an employer’s salary sacrifice savings, so in its current form it remains a useful vehicle for savings. After the seminar, 61 per cent of respondents said the Autumn Statement changes were not as great as they thought, but they do need to plan for them.”

Aon Employee Benefits principal Martha How says: “A second argument for salary sacrifice remaining a powerful benefits delivery mechanism is because there is a whole tranche of benefits where employees currently pay tax but save NIC. The Autumn Statement proposals leave the employee National Insurance savings intact. These benefits include private medical insurance, dental insurance, travel insurance and will also include health screenings, life assurance and income protection insurance.

“The fact remains that salary sacrifice will continue to deliver significant employee National Insurance savings, based on current proposals, while employers will still benefit from the big three – pensions, childcare and bikes.

“Now is a good time to re-assess benefits strategy, but closing salary sacrifice schemes for most benefits would reduce the real value of benefits in the hands of employees.”