Employee benefits legislation update from Mercer
The legislative landscape impacting HR leaders is ever-changing.
Here are three key updates from Mercer Marsh Benefits (MMB).
National insurance
National insurance contributions (NICs) will have risen to 15% from 13.8%, while the threshold for employer NIC payments has decreased to £5,000 from £9,100. This came into effect on April 6.
As employers consider how to manage these higher costs, they are looking at their biggest single spend – salaries.
However, in a tight talent market where many employees are concerned by the cost of living, lower wages may simply not be feasible.
The increase has caused many employers to consider salary sacrifice (also known as salary exchange) for pension contributions to reduce this additional cost.
For companies contributing the minimum 3% pension contribution and hence employee contributions of 5%, salary sacrifice could save around 0.75% of total payroll costs.
Employers with higher employee contribution rates could see even larger savings.
It should be worth nothing that your employees also benefit from reduced NI contributions.
- Top tip: Our view at MMB is that salary sacrifice is underused due to historic lack of awareness. Maximise take-up by making it easy for employees to opt into schemes all year round. You will also need to review eligibility requirements considering the minimum wage increases, which took effect from April 2025.
Inheritance tax (IHT)
The announcement in the Autumn Budget 2024 that, with effect from April 2027, most unused pension funds and death benefits will form part of an individual’s estate for IHT purposes, will most likely see an uptick in employees wishing to seek financial advice to prepare for this change.
Employers may wish to respond by offering employees financial education and/or access to advice.
Much of the detail is still unclear at this point, however the intention of the government is clear.
Employees should continue to ensure they have an up-to-date nomination of beneficiaries in place.
We are closely monitoring the HMRC consultation regarding the IHT changes announced in the Autumn Budget and have submitted questions to clarify the proposals.
Currently, there are differing opinions on whether lump sum death benefits from registered group life schemes will be included in the new calculations.
- Top tip: Our guidance to organisations is to seek expert tax advice and await further information before restructuring existing arrangements.
Pensions
While legislation has not yet been introduced, the government has consulted on significant changes to the DC pensions market.
A primary goal is to shift the focus when assessing workplace pension scheme default arrangements from cost to value-for-money.
A value-for-money framework is planned, featuring clear reporting metrics that will assign pension schemes a red, amber, or green rating, which will be publicly disclosed.
Timescales for implementation have not yet been provided.
The government is also looking into the role of employers and their advisers in focusing on cost.
Policies being looked at include amending auto-enrolment legislation to require employers to consider overall value during scheme selection and appointing a board-level executive responsible for ensuring good value retirement outcomes for employees.
- Top tip: Given this clear direction of travel by the government, organisations may wish to begin considering the overall value their current workplace pension scheme offers to members now.
Supplied by REBA Associate Member, Mercer
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