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Cost of living crisis – is there a way out for you and your employees?

Cost of living crisis – is there a way out for you and your employees? 1920 1280 Growth Partners

Whether it’s soaring inflation, rising interest rates or changes announced in the Chancellor’s 2022 Autumn Budget, the cost of living crisis is impacting us all and hitting people differently.

Employees on a low income are impacted more as a bigger proportion of their income is eaten up by inflation. Those approaching or thinking about retirement will now need their pension pot to go further, raising questions about whether they can afford to retire or if retirement is sustainable. For others, the cost of servicing debt – be it credit card payments or mortgages – is leaving them with less money each month, forcing individuals to make trade-offs between necessities and savings. 

Furthermore, numerous scholarly articles have proven financial worries can impact employee productivity, mental health, lack of focus at work and absenteeism.

Without the help, and at least some level of guidance from their employers, employees may be likely to believe there are only two possible ways out of this crisis:

  1. Increase in pay in line with inflation this is one option to help employees cope, but this is not always possible, and even if it is, companies are unlikely to be able to keep up with rampant inflation. 
  2. Cut back on spending – without a pay increase, employees are likely to resort to cutting back spending and savings including pension contributions, which may impact their retirement lifestyle significantly.

How to support your employees to navigate the cost of living crisis

In some (limited) circumstances, increasing staff pay or cutting spending may well be the only way out of this crisis, but in most other circumstances there are other ways employers can support their workforce to navigate through the cost of living crisis and improve their employees’ financial wellbeing. 

We outline below some of the ways to help your staff improve the way they manage their money:

  • Employee benefits and discount scheme
    Discount schemes help employees save money on the things they want and need to buy. These can really make a difference now that people are seeing increased pressure on their finances. Making purchases via the employee discount scheme can help ease the financial squeeze because of soaring inflation. A recent survey by Opinium found that 36% of UK adults say they are already cutting back on what they spend.
  • Employee Assistance Programme (EAP) 
    This can help employees cope with the pressure that everyday life brings, and prevent personal problems impacting their work performance, health and wellbeing. An EAP can offer employees a wide range of support, including online resources, counselling, and referral services if they are struggling.
  • Pension guidance and awareness
    When times are tough financially, it may be tempting to reduce or stop pension contributions without understanding the long-term implications. In fact, according to research carried out by Barnett Waddingham, 7% of people plan to reduce their workplace pension contributions to keep up with the increased cost of living. This translates to 1.05 million people. Pension is not only one of the biggest perks in the workplace, but also an important, and for many, the only source of income in retirement. Therefore, it’s more important than ever that the benefits of pensions are well communicated to help employees avoid making decisions that they will likely regret later in life.
  • Financial education
    Financial education and guidance in the workplace can make a huge difference, giving employees the opportunity to learn about budgeting, money-saving tips, debt management, retirement planning etc. This can help employees make their money stretch further. Financial guidance can also encompass signposting to external services, for example, budgeting tools are available online such as Money Helper’s budget planner.
  • Salary sacrifice schemes
    Offering employees the option to exchange part of their pre-tax salary for ‘non-cash’ benefits such as childcare vouchers, company car, cycle to work scheme or additional pension contributions, is another way to help employees ease the squeeze on their finances without adding any extra costs to the employer. In fact, like the employees, employers also save money through the scheme by paying lower National Insurance contributions on the reduced employee wages – savings which can also be allocated to other areas of the business. Offering a salary sacrifice scheme is an excellent tool for employers to attract talent to the organisation.

The cost-of-living crisis is expected to be an unwelcome guest in the UK for some time so, supporting employees to build their financial resilience and improve their financial and emotional wellbeing is especially important right now. 

For more information about how we can help you and support your employees navigate through the cost of living crisis, visit our SMART Employment page and read more about supporting your employees’ financial wellbeingemotional wellbeing and physical wellbeing.

Amrik Birdi, Pension Consultant at Growth Partners

blankAmrik has a wealth of knowledge in pensions having joined Growth Partners from KPMG where he was responsible for advising companies and trustees on independent DC provider procurement exercises, DC investment strategy review, DC pensions strategy review, automatic enrolment compliance, and meeting ongoing governance requirements. Amrik spent three years before this as a Pensions Guidance Specialist at Pensions Wise helping members understand their pension and retirement options, empowering them to take control of their retirement journey. With a Diploma in Regulated Financial Planning and Certificate in DC Governance, combined with a Degree in Economics, Amrik is a fully qualified pensions consultant and able to offer strategic support to our clients on their options for workplace pension schemes and auto-enrolment.

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Chancellor’s Autumn Statement 2022: How does it impact pay and pensions?

Chancellor’s Autumn Statement 2022: How does it impact pay and pensions? 1920 1280 Growth Partners

Chancellor Jeremy Hunt’s 2022 Autumn statement focused on prioritising stability, growth and public services but what does this mean for your employees’ pay and pensions?

The chancellor announced that the tax take from his fiscal statement will increase by just 1% over the next five years, and still ensure the UK maintains the most generous tax-free allowances of any G7 country. The thresholds and allowances previously announced for the highest earners however are set to change.

The chancellor was somewhat muted on the pensions front, with the only mention being the reinstatement of the state pension ‘triple lock’.

What are the key tax changes, what is the ‘triple lock’ and how does it affect the state pension?

How will the tax changes affect employees?

It’s good news in relation to tax bands for low earners – they haven’t been reduced so the income tax personal allowance is frozen at £12,570 until April 2028. Only employees earning more than this will pay tax and, of course, they will only pay tax on anything above £12,570*

*For higher earners, the £12,570 personal allowance will be reduced by £1 for every £2 of ‘adjusted net income’ earned between £100,000 and £125,140, again frozen until 2028.

The basic rate tax band will remain the same until 2028. For higher earning employees, the threshold for the 45% additional rate tax will be cut from £150,000 to £125,140 from April 2023.

Unlike the state pension however, the tax thresholds have not been increased in line with inflation.

What is the triple lock?

Introduced in 2010 by the Conservative-Liberal Democrat coalition government, triple lock guarantees that, each year, the state pension will rise by whichever rate is the highest of either:

  • Average earnings
  • Inflation – as measured by the Consumer Prices Index (CPI), or
  • 5%

As an example, if average earnings rose by 3% and inflation rose by 5%, then the state pension would be increased by 5%.

Why was the triple lock system introduced?

The triple lock was introduced to protect pensioners against the impact of inflation on money.

If the state pension didn’t increase at least in line with inflation, then you wouldn’t be able to buy as many goods and services with your pension as you did before.

Why was the triple lock reinstated in the Autumn Budget 2022?

Following the coronavirus pandemic, average wages were rising by over 8%, and sticking with the triple lock rules would have meant the state pension would also need to rise by 8% – an unprecedented increase which the government never saw coming!

As a result, the government announced the suspension of the triple lock for the 2022-23 tax year to ensure fairness between pensioners and taxpayers.

Retention of the triple lock was a Conservative Party manifesto commitment and has been the topic of much debate over affordability recently, however, in his 2022 Autumn Statement, the Chancellor confirmed that the triple lock will be reinstated from April 2023.

This means that, for the 2023-24 tax year, the state pension will rise in line with September’s inflation rate (10.1%) a formula outlined in the state pension triple-lock guarantee. For some people, the state pension will be worth over £10,000 next year!

In conclusion, this may be good news for some employees in relation to their pay and pension but as inflation rises, so does the cost of living. As an employer, it’s important to be aware of the changes and the potential impact on employees, not only financially but emotionally too.

Employees can check their income tax with their Government Gateway ID on the GOV.UK website

Employees can see how much state pension they’ll get and when using the GOV.UK State Pension Forecast

For more information about unburdening your business from payroll and pension compliance visit our SMART Employment page and read more about supporting your employees’ financial wellbeing, emotional wellbeing and physical wellbeing.

Amrik Birdi, Pension Consultant at Growth Partners

blankAmrik has a wealth of knowledge in pensions having joined Growth Partners from KPMG where he was responsible for advising companies and trustees on independent DC provider procurement exercises, DC investment strategy review, DC pensions strategy review, automatic enrolment compliance, and meeting ongoing governance requirements. Amrik spent three years before this as a Pensions Guidance Specialist at Pensions Wise helping members understand their pension and retirement options, empowering them to take control of their retirement journey. With a Diploma in Regulated Financial Planning and Certificate in DC Governance, combined with a Degree in Economics, Amrik is a fully qualified pensions consultant and able to offer strategic support to our clients on their options for workplace pension schemes and auto-enrolment.