Protection in Numbers  

Salary sacrifice change will hurt group protection

Salary sacrifice change will hurt group protection

Philip Hammond's salary sacrifice changes could hurt workplace benefit schemes, just at a time when the Department for Work and Pensions is attempting to enhance them, commentators have said.

Katharine Moxham, spokesman for Group Risk Development (Grid), said the chancellor should have made group life and income protection plans exempt from changes to the salary sacrifice scheme to encourage more people to take up vital insurance.

As mentioned in the Autumn Statement, from April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.

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However, Ms Moxham said: "We are obviously disappointed that government has not seen fit to give an exemption for group life or income protection where employees are able to increase their coverage through salary sacrifice.

"The amounts involved are small and the resulting change will simply add complexity for providers and scheme members. It will add a further burden on businesses which might otherwise have included a facility to allow their employees to build on a basic level of employer-provided cover."

Mr Hammond targeted targeted salary sacrifice schemes where employees exchange some of their salary for a non-cash benefit in kind, where both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all.

Some elements, such as pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt from the changes to the taxation of salary sacrifice schemes.

Ms Moxham said it was important for the provision of group protection and income protection benefits to be encouraged as they reduce the burden on the state, provide value to employers and employees and were aligned to the Department of Work and Pensions (DWP's) recently-stated goals of supporting people back to work.

She added: "The outcome is particularly pertinent for group income protection given that the DWP/Department of Health green paper on work, health and disability has recognised the role that group income protection can play in supporting employers' health, wellness and attendance programmes.

"Clearly some joined-up thinking needs to take place here."

The DWP's recent 88-page document: Improving Lives - The Work, Health and Disability Green Paper, published jointly with the Department of Health, called on employers and the insurance industry to provide better and more tailored protection products specifically for use in the workplace.

The insurance industry took another blow in the Autumn Statement, as the chancellor announced the third hike in the Insurance Premium Tax in 18 months. IPT will rise by a further 2 per cent, following a 0.5 per cent in the 2016 Budget.

Morag Livingston, group risk and healthcare manager at Secondsight (part of the Foster Denovo Group), said this would only increase the number of people without any form of insurance.

She commented: "These increases will have an impact for many employers when it comes to their healthcare provision.  And for some employers, the increasing cost of providing private medical insurance (PMI), dental cover and cash plans may even force them to stop offering some of these much sought-after benefits altogether.