- Mercer comments on productivity, employee benefits, small businesses, UK debt, taxation, the Money Purchase Annual Allowance and pensions transfers
Productivity and Workforce
Gary Simmons, Partner and Client Director at Mercer said, “With current demographic trends suggesting that the UK could be sailing into a workforce crisis, there was not enough in the Budget to prepare for the needed investment in skills, retraining and other ways of increasing participation from those that don’t find the workforce as accessible as it could be. The one exception was the welcome extension of free Childcare provisions for working families with 3 and 4 year olds.
“There was, however, more clarity given to some of the provisions set out in the Autumn Statement for productivity and infrastructure to be earmarked to invest in STEM areas, fiber networks and 5G, all of which will be helpful in increasing automation, available work in rural economies and home-based working. Much focus was given to the new T–Levels and technical training for the young in general, but the impact on the workforce of these policy changes will be slow. There was no obvious help in the retraining of older workers in these necessary skills and for increasing participation – which the OBR admits is close to its underlying potential rate. There was a somewhat paltry sounding figure of £5m to invest in investigate the best way to retrain people with ‘returnships’ for those who have been out of the workforce for some periods of time. And even here, the Chancellor’s language spoke of preparing the economy for today’s younger workers for later in the careers – rather than any short or medium term needs for those currently in the workforce. So investment and competition between organisations for the talent they need seems to be seen as the default position of driving further investment in skills for the economy, rather than holistic government intervention.
“Looking at the workforce as a whole, the OBR has increased its projections from 520,000 new in employment in 2021 mentioned in the Autumn Statement to 660,000, but admits this comes from the same participation from a higher than forecast population by the ONS. It does this time explicitly mention that around 75% of this expected rise in employment is accounted for by net inward migration, but the numbers to back this up appear absent or don’t quite add up. There is no mention, for example, of where additional carers will come from as local authorities seek to spend the additional funds made available for social care and no reference to explicit additional help for carers in the workforce.
“Finally, given the economic need to attract workers from diverse backgrounds and circumstances, the attractions of self-employment or having service companies are a large part of providing labour market flexibility. Today’s moves to balance up the taxation base between employment and self-employment can be justified economically from the perspective of the better state benefits now available to self-employed workers. However it is to be hoped that Class 4 NICs do not become a go-to tax for future Chancellors looking to balance the books regardless of the damage this may do to the UK’s dynamic and flexible workforce.”
Marena Mieras, Senior Flexible Benefits Consultant at Mercer said, “While there is little impact on benefits in the Spring Budget, there was a welcome commitment of £100m to fund additional GP triage services into NHS A&E by next winter. This will certainly help alleviate the pressures on waiting time for treatment. However, recognising that there is a current shortage of GPs in the system and recruitment is already an issue, it remains to be seen how these new services will be delivered. There was also welcome news for working parents of 3 and 4 year olds who will see their entitlement to free childcare doubled to 30 hours a week from September 2017. Tax Free Childcare is being launched in April as expected and will be rolled out to all eligible employees by the end of the year.
As indicated in the Autumn Statement, the Government has confirmed they will be calling for evidence on the exemptions and valuation methodology for the Income tax and National Insurance contributions treatment of benefits-in-kind. This comes hot on the heels of the Autumn Statement changes affecting salary sacrifice and is aligned with the Government’s rationale of making sure the tax system is fair and consistent for all. A planned Consumer and Markets Green Paper on protecting consumers by simplifying terms and conditions and providing greater enforcement powers against those who breach regulations could impact online benefits plans but it remains to be seen how broad a reach the Paper will cover.”
Taxation and Savings
Roger Breeden, Mercer’s UK Workplace Savings and Investment Leader, said, “With the dividend taxation allowance set to reduce from £5,000 to £2,000 from April 2018, higher and top rate tax payers should have a bigger incentive to use ISA allowances. The ISA limit is set to increase from April 2017 to £20,000 and is an example of where good financial planning helps to maximise after tax returns on savings. Tax planning is just one area where employers can use financial wellness programs to help all employees achieve greater financial security.”
Small businesses and the Self employed
Donna Biggs, Head of SME at Mercer, said, “Smaller businesses seem beset by more administrative and cost burdens while still coping with pensions auto-enrolment. The three financial measures - a £50 per month cap for those losing relief, £1000 discount for selected pubs and a £300 million fund for the hardest hit - being applied to the business rate re-valuation, along with the delay in needing to implement the Governments new digital tax system for a further year for some, may be a welcome, albeit small, relief. This is offset by the self-employed seeing increased National Insurance Contributions over 2018-2019. This might be perceived as unfair given that they do not get all the same benefits - like holiday pay or paternity leave - as the employed. This may signal the start of a process to level the playing field for different employment types in the UK.”
Brian Henderson, Leader for DC & Financial Wellness at Mercer, said, “UK debt is high and productivity is low at a national level. With unsecured household debt continuing to rise to the highest level since 2008, we are disappointed to see that the Chancellor has made no effort to help those burdened with debt and reduce the UK’s reliance on debt-fuelled spending.
“Overall unsecured debt, excluding student loans, has risen by 7.5% over the past year to over £7,100 per household, including over £2,400 on credit cards. This debt burden will be taking a heavy toll on the financial wellbeing of many people, affecting their stress levels and undermining their ability to become financially resilient. This is an area where employers can stand in to help.”
Money Purchase Annual Allowance and Pensions transfers
Glyn Bradley, Principal in Mercer’s Innovation, Policy and Research team said, “The Chancellor today confirmed that, despite many complaints, the Money Purchase Annual Allowance will be reduced to £4,000 from this April. Pensions Freedom increasingly looks a one-way street – with further money purchase saving tightly limited for anyone who has used that freedom. This approach lacks flexibility for people who may need to access their savings ahead of retirement but are later in a position to build those savings back up again.
“The Chancellor also announced a 25% charge to pensions transfers, requested from 9 March 2017 onwards, to qualifying recognised overseas schemes where there was not a ‘genuine need’. As well as cracking down on tax avoidance, this could also help limit the use of overseas schemes by pension scammers.”
Notes to Editors
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.