In the government’s Autumn Statement chancellor Philip Hammond announced changes to the salary sacrifice scheme from April 2017.
Back in the 1970s Margaret Thatcher, who was education secretary at the time, was labelled the ‘Milk Snatcher’ when she removed free milk for under-sevens. Now Hammond could be labelled the ‘iPad Nabber’ for taking away employees’ access to discounted phones and iPads to instead focus on pensions and childcare.
But while Thatcher was vilified for her decision it may be that the chancellor will be hailed a hero. He might have potentially done savers (especially younger ones) a huge favour.
His decision could be a significant force for good in the future retirement planning for this generation and the next. By removing some of the 'sexier' options available under salary sacrifice he may have paved the way for employees to think more with their financial heads.
For HR managers these changes also provide an opportunity to speak to employees about financial issues and promote pensions. By clearing away some of the 'benefits clutter' available to employees they can concentrate on things that will provide longer-term benefits, such as becoming healthier by embracing a cycle to work scheme or increasing pension savings.
Let’s look closer at the iPad vs. pension dilemma and the pros and cons of each for employees.
Cost. An iPad will cost £600 per year, whereas a pension will cost up to 5% of earnings until retirement (the current auto-enrolment minimum from April 2019). The iPad wins.
Employer assistance. The government has made it compulsory for employers to pay into employees’ pension funds thanks to auto-enrolment. The pension wins.
Payment period. It takes just 12 months to pay for an iPad, as opposed to 40-plus years for the pension. The iPad wins.
Instant gratification. Obviously the iPad wins hands down here. For younger employees pensions are in the very distant future.
Salary sacrifice benefit. A salary sacrifice iPad won’t be available after April 2017, whereas the pension will still be tax and NI free. The pension wins.
Shelf life/longevity. The iPad will last three to four years before becoming relatively obsolete, whereas the pension will hopefully last a retirement lifetime. The pension wins.
Cool rating. iPads are cool, pensions aren’t. The iPad wins.
Delivery of the benefit. iPads come in a nice box. But pensions have also had a makeover in recent years and there are several options now available for people from the age of 55. The pension wins.
Future financial benefits. Zilch for the iPad. Very promising for pensions, with minimum combined employee contributions set to rise over the next few years to 8% and hopefully further after 2020. The pension wins.
Weighing up the benefits of both, we can see it’s been a tough but fair fight resulting in a 5:5 draw.
But one of the main benefits of the changes for HR managers is that they will have a chance to engage employees in financial education and encourage them to think about pensions. Employees who would have quite happily bought a new iPad (or similar) need to be encouraged to think about putting their £50 a month towards their future.
While it’s not sexy and there’s no instant gratification in making these decisions it’s ultimately one people can’t afford not to make.
Darren Hedgley is associate director at Punter Southall Aspire