How the Spring Budget will affect an emerging workforce

Amba

The ongoing cost of living crisis, the fallout of a global pandemic, and an impending economic downturn have many employees feeling the pinch – and on the face of it, this year’s Spring Budget was a relatively timid affair. The announcement, which lasted just over an hour, brought updates on increases to the defence budget, decreases in inflation and freezes to alcohol and fuel duties.

However, there were some initiatives that had us high-fiving across the office:

  • Proposed increases to the 30 hours free childcare
  • Lifetime allowance abolished
  • Pension updates

Proposed increases to the 30 hours free childcare

In a bid to encourage more parents back into work, Jeremy Hunt shared the proposed plans to allow parents of children as young as nine months to claim 30 hours of free childcare a week.

The current policy applies to children aged 3 and 4 – If the new policy goes ahead, this could be worth up to £6,500 a year, per child for working families. Although the scheme will be incrementally rolled out until September 2025, this shift towards a larger demographic of parents in the workplace will invariably call for additional employee benefits support.

Lifetime Allowance abolished… but what does that mean for most?

It was a surprise to learn that the rumoured increase to £1.8m for individuals’ pension lifetime allowance was going to be abolished in lieu of no limits.

For most employees in the workplace, this change will not mean much. The average wage in the UK is £39,000 and most employers offer a basic auto-enrolment pension with a total of 8% of the value of an employee’s pre-tax salary headed into their pension pot.

Even the announcement that the annual pension allowance, increased by 50% from £40,000 to £60,000 will not affect most workers. Our key takeaway from this budget was the stance that Amba have adopted throughout the cost-of-living crisis…

Small, incremental amounts can make a big difference

For most people paying more into their pension is the last thing on their minds in the current climate. But small increases now can make a big difference in later years, the younger you are the longer you can contribute and the longer your pot has to grow (and absorb any financial shocks along the road.) Most employees do not realise that they can pay more than the minimum into their pensions and the tax breaks this can lead to. For higher earners, these tax breaks are even better. 

By educating employees about the benefits of their pensions they can make informed choices that can lead to increased pension contributions either on a regular or ad hoc basis. 

Allowing them to save on their own terms with a level of flexibility means that they will be able to reach their own financial goals far quicker than they can if the minimum is contributed to their pension pot. 

Education, flexibility, salary sacrifice, tax-deductible expenses, and employer pass back

By providing financial education and literacy around pensions and offering flexibility on how and when your employees can contribute to their pension plan, you are able to empower employees to save more for their retirement.

Salary sacrifice helps employees increase their overall take-home pay by removing the tax from the amount that they contribute to the scheme. Less gross pay to be taxed… more net pay to take home!

Pensions are a tax-deductible expense for employers and with Corporation Tax increasing from 19% to 25% next month this represents a huge saving for most employers.

Also, the 13.8% Class 1a National Insurance Contributions (NIC) saved by employers can be used to offset running costs of a benefits/pension platform or can be passed back to your employees through their pension to further enhance their overall retirement planning savings.

Segment your audience

The reason robust flexible benefit programs work is that they recognise that one size does not fit all. Within your workforce, you may have people in their first career, pre-retirement, family planning, and many other key life stages that may not be instantly recognisable.

In offering financial well-being, you can segment communications to key demographics to increase awareness and engagement with the benefits that you offer.

For long-term strategic benefits guidance book a call with Dan our Benefits and Engagement Expert.

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