Compulsory pension contributions are on their way for every business & will take on a much higher profile over the coming months as:

• The Pensions Regulator sends letters to employers outlining the new responsibilities
• The Department for Work & Pensions arranges telephone interviews with a sample of employers (EBS has been selected for a call!)
• The Pensions Bill becomes an Act next month
• NEST – the National Employment Savings Trust goes live

Key considerations for every business will include:

• When will this affect my business?
• Which of my employees will be eligible for compulsory pension contributions?
• Which of my employees can also voluntarily opt-in and request an employer pension contribution?
• How much could this increase my costs by?
• What options do I have to control my costs?
• Does my current pension scheme & contribution basis meet the new requirements or will I need to make changes?
• Should employees not currently eligible be enrolled into my existing scheme or an alternative?
• How much additional administration is involved?

EBS can provide the answers to these questions for your business now – for further information speak to us.

A summary of the proposals is also available from our website.

The change though is not effective until April 2011 so the anti-forestalling rules still apply and it is worth reminding any high-earners that large payments into pension before 6th April 2011, such as bonus sacrifice, may not necessarily attract the full level of tax-relief expected and could be as low as 20%.

EBS is available to provide specialist advice for employees, click here for full details of our Tax Clinic Service.

Employers and the insurance industry heaved a collective sigh of relief when the legislation confirmed that risk benefits (Life Assurance, Income Protection, Accident & Sickness and Private Medical Insurance) would be exempt.

This means that employers can continue to operate these arrangements on the current basis. Those wishing to extend cover should note that insurers are now prepared to offer terms to age 70 but many businesses may choose to link their benefits with the position of the Government which links entitlements to State Pension Age.

Click here for our November article.

For advice on how these changes may impact your business contact EBS.

This protection applies to bank deposits, insurance policies and insured pension arrangements. The limits apply per person, so a couple can receive up to £170,000 joint-protection but the limit also applies per financial group – so savings or investments with two different companies sharing the same banking licence would only receive £85,000 total protection.

Compensation is just one factor which should be taken into account when reviewing your investments, EBS’ Investment Performance Review lifts the bonnet on your current arrangements and reports back on:

• Performance – is it meeting your expectations?
• Asset Allocation – do you understand where your money is actually invested?
• Charges - are you paying more than is necessary?
• Taxation – are you paying too much tax on your returns?

Why not find out more & get your investments in order for the New Year? An initial meeting is free from obligation & is held at our expense.

• Bank of England once again holds interest rates at 0.5%
• House prices fell by 0.1% in November
• Mortgage Lending fell 5% in November

The Bank of England’s Monetary Policy Committee has now kept interest rates on hold for 21 months which is good news for everyone with, or looking to secure, a mortgage. Not such good news for savers of course & we expect to see rates remain low throughout 2011.

The Halifax House Price Index reported a 2.1% reduction in the three months to November. The Halifax attributed this trend to higher numbers of properties for sale combined with reduced demand. On a more positive note for homeowners a spokesperson said that fewer properties coming onto the market and continued good mortgage affordability would prevent a significant fall in house prices.

The Council of Mortgage Lenders reported a 5% drop in mortgage lending for the month of November.  However, it is widely accepted that this fall was accentuated by a relative peak a year ago as first-time buyers came into the market ahead of the withdrawal of Stamp Duty concessions.

Whether you are looking to move, improve your current home or remortgage, EBS can provide independent mortgage advice. An initial consultation is free from obligation & conducted at our expense. Get in touch to find out how we can help you.

Employees who already participate in a scheme on or before 5th April 2011 are not affected but for new joiners beyond that date the employer must carry out a ‘basic earnings assessment’.

These changes are the result of a campaign against the previous Labour Government’s proposal to abolish tax-relief on Childcare altogether and mean that every participant receives basic-rate tax relief worth up to £11 per week. Currently higher-rate tax-payers can benefit by up to £22pw and additional rate tax payers by as much as £27.50.

Employers will be required to carry out an assessment of the taxpayer’s basic employment income based on basic pay, contractual or guaranteed bonus payments, regional allowances, taxable benefits (P11d) & shift allowances. The assessment excludes performance related or discretionary bonus payments, overtime and other benefits which are tax-exempt (pension contributions, employee share schemes & charitable donations made via payroll.

For salary sacrifice arrangements it is the post-salary sacrifice amount which should be used for the assessment. No assessment is necessary for employees already participating in a scheme on or before 5th April 2011.

Full details are available from these HMRC Guides:

• Guide for employers
• Guide for employees

EBS has recently negotiated charge reductions on childcare schemes for a number of clients, if you would like to see what we can do for you, without obligation, please get in touch.

These changes do not apply to workplace nursery schemes.

Based on their discussions change will have a big impact on almost everyone in a year where property prices are expected to remain flat and interest rates set to rise before the end of 2011:

Do you have an existing interest only mortgage?

Lenders must now  carry out spot checks to ensure a suitable repayment vehicle is in place. If you do not have something arranged speak to EBS to discuss your options.

Are you looking for a mortgage above 75% loan to value?

These will now only be available on a repayment mortgage basis – even if you have a suitable repayment vehicle in place. If you have an interest only mortage at this level then you might find yourself locked into your current  lender as remortgage terms may only be offered on a repayment basis. Increasingly mortgage lenders are now calculating affordability on all new mortgages on a repayment basis which will create a drag on property prices.

Fast-Track Mortgages

With self-certification mortgages no longer available, the feeling is that fast-track schemes will soon similarly disappear, requiring evidence of income for every new mortgage application.

Some good news – Looking to remortgage in 2011?

As an independent mortgage consultant, EBS can access a wide range of schemes including an innovative new scheme, from a major lender, which takes the pressure off the decision to fix your interest rate or not. This new scheme offers:

• Lifetime tracker rate
• Free property valuation
• Free legal fees
• No arrangement fee
• The option to switch to a fixed rate at any time with no early redemption fee

This is great news for anyone looking to remortgage during the next few months.

If you need independent mortgage advice contact Dave Welch.

We can assure you  of high levels of expertise and client care – as evidenced by this thankyou received by Dave & Geoff earlier this week from Ms. E. Crichton:

“…just one more big thank you to you both for all the support you give. I always feel like I am the only client you have (maybe I am….just kidding!) and that nothing is too much trouble. If only everyone was as responsive, the trauma of moving would be so much easier. Thanks again.” 

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS ON YOUR MORTGAGE

• The source of this story is a national newspaper. Whilst nothing has been denied by Government, there is no official source, though Vince Cable has been quoted extensively. Some speculators are suggesting that this was a controlled leak to gauge public reaction…
• The basic state pension will be increased to £140pw (currently £97.65 though with a minimum income guarantee of £132.60pw and £198.45 for couples).
• This increased pension will replace entitlement to all other state pensions including SERPS, S2P and pensions credit.
• The new pension would be based on years of UK residence rather than NI contributions/credits. This would significantly benefit women & carers.
• The new benefit will only apply to new pensioners after the implementation date , it will not apply to current pensioners. 2015 is the earliest likely implementation date.

What these proposals would do is simplify the state pension entitlement process and EBS would welcome any change which eliminates any disincentive to save for retirement.

There are though many issues to consider:

• How will this be paid for? It is well-documented that the UK cannot afford the current level of State Pension provision and whilst there would be savings to be made through a simplified process, these would take many years to appear, especially as existing pensioners would remain on their current entitlements.
• What happens to those individuals who have accumulated a greater entitlement than £140pw – particularly by buying additional credits? Will they maintain their greater entitlement or is this a ‘for better or for worse’ change. If the cost is to be met through simplifying the process it might be fair to assume the latter.
• How will UK residence be determined?
• Is there an added incentive to contract-out of S2P as presumably any private pension funds will accumulate in addition to the State provision?

As is often the case, more questions than answers, but EBS remains on hand to handle any questions which employees may have and will be monitoring developments.

EBS strongly recommends that every employee secures an up to date state pension forecast (BR19) which is available from www.direct.gov.uk.

• The annual allowance which can be paid into an approved pension scheme and attract income tax relief at the marginal rate is to be £50,000pa. This is a significant reduction from the current limit (£255,000) but exceeds Labour’s proposal of £20,000 and industry speculation of £30-40,000. It also permits income tax relief of up to 50%.
• The lifetime allowance is to be reduced by £300,000 to £1.5M. This is the maximum retirement fund any individual can accumulate within approved pension schemes or plans.
• These allowances will be frozen until at least 2015/16.
• No changes have been announced regarding the 25% Pension Commencement Lump Sum – more commonly referred to as ‘tax-free cash’ – available on retirement.
• Members of defined benefit – or ‘final salary’ – schemes will have a ‘contribution level” determined by multiplying their annual increase in accrued benefit by a factor of 16.  This is greater than initial recommendations of 10 but less than than media speculation of up to 20.  Any increase in pension entitlement of more than £3,125pa  would give rise to an income tax charge at the recipients marginal rate of tax which would be collected via self-assessment.
• To prevent penalising employees who receive a significant increase in pensions accrual due to promotion or redundancy which exceeds the annual allowance, any unused allowance from the previous three years will be available to offset against the excess.
• Ongoing consultation is considering whether to allow the pension scheme to pay the tax on the individual’s behalf or for the member to have their pension reduced rather than pay the explicit income tax charge. EBS will be monitoring developments.
• Finally, the paper commented that legislation will be introduced to ensure that Employee Benefit Trusts and Funded Employer-Financed Retirement Benefit Schemes are ‘less attractive than other forms of remuneration’.

EBS can deliver one-to-one employee clinics or group presentations outlining these changes and any potential impact on employees to ensure that your top people are kept well-informed and made aware of their retirement planning options. These can also cover income tax restrictions on six-figure earners.

Contact EBS for more details or for testimonials on our work so far..

So what might this mean for your business?

• HR policy may need to be updated and communicated
• Most pension schemes should be able to cope with this change already but it’s always worth double-checking.
• Other employee benefits could be more challenging to adapt (Life assurance, Income Protection, Critical Illness and Private Medical Insurance). These can be cost-prohibitive and also difficult to source, although cost alone has not yet been considered sufficient defence against charges of age discrimination.

What options might you consider?

• Consider closing schemes to all new entrants – an extreme reaction and one which the Government & the insurance industry would be keen to avoid – employee benefits currently provide 40% of the UK’s total life assurance benefits & 70% of its income protection.
• Allign benefits to cease when the individual becomes eligible for State Pension. This may well prove to be popular – EBS can provide guidance on the latest consultation regarding State Pension entitlement changes.
• Develop a flexible retirement strategy offering reduced benefits in conjunction with a phased retirement.
• Consider other methods of capturing cost-savings within employee benefits to offset the increased cost likely from this legislative proposal. Changes can be introduced for existing members or new joiners.

The proposals are already meeting resistance – with the CBI requesting a twelve month deferral citing  the short timespan for implementation as unworkable. 

Some test cases have also seen employers justify that retirement has to be enforced to create opportunities for the career development of others – this has mainly been successful for senior employees but may provide an opportunity to link the default retirement age to the role.

EBS will be monitoring the progress of the legislation and developments within the risk benefits market, producing regular updates.

To discuss how your employee benefits might need to adapt to encompass these proposals contact EBS.