Flex market developments and how pensions are affecting the world of flex. January

Transcription

1 Flex market developments and how pensions are affecting the world of flex January

2 The agenda for this evening Flexible benefits market development Green cars Tax treatment of mobile phones Impact of real time information International flexible benefits Pensions and flexible benefits Auto enrolment impacts Focus on design, communication and making it work in practice

3 Green car scheme Employee agrees to a reduced salary in return for being provided with a benefit car Employee selects the car they want from the providers website (can be integrated into the flex site) Amount of sacrifice covers the cost of a full maintenance lease for the specific vehicle including all insurance costs Provider deals direct with employee over delivery and ongoing vehicle management Advantages to employer Employee engagement and retention Recruitment aid Support to green agenda Help mitigate grey fleet issues Save employer NI Advantages to employee Access to a new car Certainty of cost no sudden shocks Corporate buying rates and Corporate finance rates not a personal debt Income tax savings National Insurance savings New car fuel bills

4 Green Car Scheme - example entry level car

5 But not just small cars.

6 But not just small cars.

7 Green Car Risks Company risks: But, or, Total Loss (in the event of the vehicle being stolen or damaged beyond economical repair) Early Termination including resignation Redundancy Maternity/Paternity Rogue employees Driver management Fleet management Can be mitigated at a cost included in the employee s monthly lease Transferred to provider or insurer

8 Company Cars Basic tax position Benefit in kind Manufacturers list price CO 2 emission rating

9 Company Cars - Changes ahead Benefit in kind as % of car list price Zero emission cars 0% 0% 0% 13% Ultra low emission cars (CO 2 75g/km or less) 5% 5% 5% 13% Ultra low diesel emission cars (CO 2 75g/km or less) 8% 8% 8% 13% Low emission cars (CO 2 between 76g/km and lower threshold) 10% 10% 10% 13% Diesel low emission cars (CO 2 between 76g/km and lower threshold) 13% 13% 13% 13% Other cars additional 1% per CO 2 5g/km from lower threshold upwards 11% - 35% 11% - 35% 11% - 35% 11% - 37% Lower threshold Upper threshold

10 Mobile Telephones Provision of a mobile phone is exempt from tax under Section 319 ITEPA 2003 and NIC under reg 25 and part II SS (Contributions) Regs 2001 One phone per employee Includes line rental, handset and all charges Can be SIM only used in an employees phone What is a mobile phone? wireless telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communication service. Section 319 (4) HMRC argued that smartphones did not fall within section 319

11 HMRC : Expenses & Benefits A Z

12 HMRC Climb Down: Revenue & Customs Brief 02/12

13 Revenue & Customs Brief 02/12 HMRC admitted that its application of the legislation was incorrect Revised view is that smartphones are mobile phones and fall within section 319 New view applies to smartphones as configured and understood at the start of 2012 Accepted that many modern PDAs (Blackberries?) are likely to be smart phones Excludes tablets, laptops, sat nav and VOIP devices Set out refund procedure

14 Real Time Information

15 RTI What are the main changes for PAYE? RTI brings together: The payment of earnings with the submission of information relating to tax and other deductions made from those earnings. Under RTI: Information will be sent to HMRC each time a payroll is run by way of a Full Payment Submission (FPS); Forms P35 and P14 will no longer be required; Working with employers, we will overhaul the current processes for dealing with Starters and Leavers. Improving the operation of PAYE 29/09/

16 RTI the basics 130 different pieces of information.. But only 3 bits of information are new Hours worked (in 3 categories) Passport number for new employees where no NI number NI number for partners where additional statutory paternity pay will be claimed Who has this information?- HR- not payroll P11D benefits are excluded and P11Ds continue Payrolled benefits are included

17 RTI What won t change? The way in which tax and NICs are calculated; The need to give employees End of Year Certificates on form P60; The need to submit P11Ds; The dates by which you must pay HMRC remain the same 19th or 22nd of the month (or quarterly equivalent). But you may need to return an Employer Payment Summary (EPS). Improving the operation of PAYE 29/09/

18 RTI What are the next steps? Date April 2012 onwards October 2012 Event RTI Pilot begins and, subject to initial findings, expands Large employers encouraged to migrate early by joining the pilot April 2013 Controlled migration of all employers begins October 2013 Migration ends; all employers using RTI Universal Credits introduced Improving the operation of PAYE 29/09/

19 RTI: The implications of getting it wrong A failure to implement RTI on time could lead to: Employees not receiving the amount of Universal Credit to which they are entitled; Employers - and their employees - receiving unnecessary and unwanted contact from HMRC: Personal data issues Tax deduction issues Benefit entitlement issues And - of course employers will not be meeting their statutory obligations and therefore running the risk of incurring penalties. Improving the operation of PAYE 29/09/

20 RTI: Help and Support What? Where? Register for alerts RTI homepage FAQs for employers Welfare Reform and Universal Credits Improving the operation of PAYE 29/09/

21 International Flexible Benefits

22 Flexible benefits across the globe- market growth the Aon Hewitt perspective conversations per annum, in-country flex growing very slowly outside UK and USA with a few pioneers in cross border flex plans with implementations in more than 1 country Number of previously closed countries opening up to flex eg. Italy

23 Global Reward Strategy- think global act local Proportion of factors typically determined globally Proportion of factors typically determined locally Bands Market Rates Policy Strategy Pay Bonus Shares Pension Policy Funding Allocation Supplier Tax Practice -Global Benefit Policy -Global Benefit Strategy -Global Benefit Design X Other Benefits L & D 22

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25 The factors to consider -which countries to deploy a global flexible benefits plan 1. Prevalence in local market Length of time in market Number of employers in market and sector 2. Market suitability and local issues supporting Providing an environment appropriate for flex Readiness of insurers and vendors Employment and tax legislation makes flex practical 3. Employee readiness- including employee relations, diverse workforce, keen to have control over benefit decisions 4. Employer readiness Understanding Fit with HR and business strategy Structure of existing benefits, hierarchical/single status

26 Global flex plan models MODEL 1 (UK + much of Rest of World) Total reward or total benefits fund construct Flex to include pension, holiday, health, risk benefits, car and voluntary offers UK medical insurance < 1500 per annum family Salary sacrifice concept to deliver tax savings where possible Minimal core benefits to allow employee to maximise cash MODEL 2 (North America) Health and welfare- and comprehensive risk benefits USA medical insurance > 15,000 per annum for family 401K savings and pension separate No holiday flexibility Fixed benefit funds which cannot be converted to cash- use it or lose it

27 Global flexible benefits strategy to encompass diverse markets Total reward and benefits strategy -common policy -common brand -common portal -common insurers -common benefit design -common benefit framework Fixed benefits but common policy and philosophy, brand Fixed benefits, allow flex in certain benefits, common TRS, common portal/admin/hris Flexible benefits for all feasible Countries, common, TRS, common portal /admin/hris

28 Which countries and flex friendly: Europe, Middle East and Africa Common UK Spain Hungary South Africa Present but not common (* growing recently) Sweden and Nordic Ireland (*) Italy The Netherlands(*) Belgium Czech Republic (*) and Slovakia Poland (*) Portugal UAE Turkey(*) Rare France Germany Greece and Cyprus Russia and Lithuania Austria Middle East Switzerland

29 Which countries and flex friendly: Asia Pacific Common China Present but not common (* growing recently) Hong Kong Rare Japan Singapore Korea Malaysia Indonesia Thailand Pakistan Australia and New Zealand India * Taiwan

30 Which countries and flex friendly: Americas Common Canada Present but not common Argentina Rare Peru USA (model 2) Chile Mexico Brazil

31 Pensions and the world of flex 30

32 Pensions and flexible benefits Auto enrolment what are the main impacts on flexible benefits plans? Three key areas: Plan Design Communication Administration and systems making it work in practice

33 Flex - a brief definition An integrated plan that offers employee choice around how they receive the value of their total reward package, as cash and a combination of benefits Fixed Bens Pre Flex OTHER PAY AND BENEFITS VARIABLE PAY CAR ALLOWANCE PENSION LIFE ASSURANCE LONG TERM DISABILITY PRIVATE MEDICAL Post Flex OTHER PAY AND BENEFITS VARIABLE PAY BENEFIT FUNDING CORE BENEFITS Flex Fund Fixed Base BASE SALARY BASE SALARY ANNUAL LEAVE ANNUAL LEAVE

34 Auto enrolment some flexible benefits plan design considerations To ensure that the flexible benefits plan design does not fall foul of inducement rules The main concern of TPR is that flex is not used to encourage employees to opt out Should pensions be included in flex? Many employers who operate a flexible benefits plan include the ability for employees to make their flexible benefits contributions through the flex platform Fewer employers actually include the employer contribution in the flex fund. In this case the employee won t be able to take the employer pension contribution as cash or spend it on other benefits if they decide to reduce their contribution or opt out of the pension scheme. What about employees opting out through flex? Flex makes the cost to employees more visible to employees. Flexible benefit systems almost always include net pay modellers and the ability to model different scenarios so you could say that this might make employees more likely to opt out. How do we deal with salary sacrifice? Salary sacrifice arrangement cannot be a condition of scheme membership. This is because a jobholder cannot express a choice in relation to any matter to become or remain an active member.

35 Conditions for an effective salary sacrifice Contractual- evidenced Irrevocable- no easy opting in and out Time-bound- given up before contractual entitlement Cannot easily revert to cash The HMRC salary sacrifice guidance stipulates that to be an effective salary sacrifice, two conditions must be met:- the potential future remuneration must be given up before it is treated as received for tax or NICs purposes the true construction of the revised contractual arrangement between the employer and employee must be that the employee is entitled to lower cash remuneration and a benefit Source: HMRC Salary Sacrifice Guidance

36 What s the problem? Auto-enrolment requires the scope to opt in and out of pensions autoenrolment at any time So there is a direct conflict between the Pensions Act and Heaton V Bell and HMRC requirements However- for some anytime pensions changes have been allowed by HMRC for some flex and PSS plans- justified by employers - that if an employee wants to make a pensions changes this of itself constitutes a life event such as a significant change in personal financial circumstances However this practice has not been consistently adopted Childcare vouchers have been accepted as anytime salary sacrifice benefits for some time- generally HMRC have been consistent on this

37 Auto-enrolment and salary sacrifice New rules HMRC Q&A published June legislation has been enacted to allow anytime changes to:- Childcare Car parking Bicycles Pensions (employer contributions ie. under salary sacrifice) Just opting-in and opting out - does not prescribe that changes to contribution levels have to be made anytime Explicit suspension of the Heaton v Bell provisions for these benefits Consequences Opting in and out of pension MUST be allowed at anytime Changing pension contribution levels MAY be allowed CCV, bicycles and car parking- no real worries Pensions raises a maternity/adoption leave risk?

38 Auto-enrolment and salary sacrifice -risks Maternity/adoption risk Woman/man goes on maternity/adoption leave and anytime contribution level changes are allowed for pensions Woman/man sacrifices entire salary (above NMW) for pension Employer is bound to pay for the pension contributions through the period of paid leave and can only stop during unpaid periods Same risk applies to cars which have to be provided throughout maternity/adoption One of our large clients has had anytime pension changes agreed with their HMIT for 3 years and reports just 2 instances of abuse- most people going on extended leave for these purposes need the cash and few would be likely to do this

39 Auto-enrolment and salary sacrifice options for employers Suggested approaches 1. offer anytime pensions opt in and out but restrict pension contribution changes to life events 2. as 1 but allow say 2 other points in the year (months 4 and 8 of the flex year) where employees can make contribution changes 3. offer anytime pensions contribution changes but restrict the amount of salary that can be sacrificed (eg. to 50% of notional salary) 4. offer anytime pensions contribution changes and take the risk

40 Auto enrolment and flex communication considerations Most common date for flex renewals is January or April. Need to mention auto enrolment as employees who flex down may find themselves auto enrolled later Some employers are avoiding major changes to flex schemes this year to avoid communication overload Avoid communication approach that could be perceived as encouraging opt outs.

41 Auto enrolment and flex some administration considerations Can the flex system be used to segment the workforce for auto enrolment? Interaction of flexible benefits enrolment window and auto enrolment opt out window Flexible benefits schemes typically have an annual enrolment window and monthly enrolment window How do annual enrolment date and staging date interact? Interaction of flex monthly enrolment and auto enrolment opt out window