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Beverly Chandler

Lifetime ISA and introduction of new tax allowances in Budget welcomed

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Commenting on the 2016 Budget announcement, consultancy firm Mercer welcomed the announcement of further choice for younger savers through the introduction of new Lifetime ISA accounts.

 Mark Rowlands, Head of DC Services, says: “The government bonus and flexibility to use the savings to fund house purchase will encourage younger employees to save.  Employers will need to revisit their savings offering for all staff, young and old, to make sure that they can cater for this new option now available. With five generations in the workforce, the future for retirement savings in the workplace (including auto-enrolment) has just got even more interesting for employees.”
 
In terms of pensions, Paul Middleman, Partner, Head of Public Sector Actuarial & Benefits Mercer, says: “The Chancellor announced that the SCAPE discount rate used to assess the cost of public sector pension provision will reduce by 0.2 per cent per annum.  The estimated increase in employer contributions for the main unfunded public sector schemes from 2019/20 is around GBP2 billion p.a., or approximately 2 per cent of pay which in the Chancellors words ‘will be affordable within spending plans that are benefitting from the fiscal windfall of lower inflation.’  In a climate where financial resources continue to be stretched the employers contributing to these pension schemes may not necessarily agree. The impact on the employers contributing to the LGPS is less clear as the change in discount rate does not have any direct effect on contributions payable which are set locally.  However it may affect the structure of the LGPS National Cost Management framework and the very hot topic of benchmarking comparison between LGPS Funds which uses the SCAPE discount rate.”
 
Commenting on changes for income and capital gains, Roger Breeden, Consumer Savings Product Leader, Mercer says: “The increases to income tax thresholds and allowances and reduction in capital gains tax rates together with limited increases to indirect taxation and excise duties is welcome news for many consumers. The introduction of new tax allowances for money earned from the sharing economy should encourage more entrepreneurship. Increasing ISA allowances and new Lifetime ISA should really resonate with individual consumers and encourage a savings habit. We welcome the increase on the tax relief on employer paid pension advice and it’s a big step forward to help employees get the practical advice they need to plan for the longer term.”
 
Peter Boreham, Principal, Mercer, commenting on changes in talent and pay, says: “The expected clampdown on the use of personal service companies seems to be limited to public sector employers.  The devil of this announcement will be in the detail.
 
“Redundancy payments in excess of the GBP30,000 will now be subject to employer NICs. In practice, many termination payments are not classed as redundancy for tax purposes.  However, if and when large-scale redundancies become common again, there is a risk that this change will put pressure on the level of redundancy payments provided.
 
“Headline CGT rates have been reduced but this will not benefit participants in carried-interest plans.  Assuming that share plan participants will pay CGT at the new rates, such plans will become more attractive and employers will therefore wish to review their plans to make sure they take advantage of these provisions.   This change will please senior executives who are expected to hold vested shares from LTIPs for an extended period.
 
“Employee shareholder share plans were previously introduced by the Chancellor to give tax breaks to employees who were prepared to give up some of their employment law rights.  It seems that this arrangement will be limited.  We await further details.”
 
In terms of employee health and benefits, Simon Griffiths, Principal, Head of Strategy and Commercial Development, Mercer Marsh Benefits says: “The Chancellor has announced a further 0.5 per cent increase in insurance premium tax. Whilst this increase is lower than had been predicted in some quarters, it will still have an impact on the cost of certain employee benefits.
 
“This 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, a process MMB is already engaged in with many of our clients through Workplace Health Solutions. 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.”

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