newsletter.

 

introduction by David Cassidy.

“We are proud to announce that we have launched our Workplace ISA at a time when financial education is on the increase, as suggested by 76% of UK companies in a recent survey we conducted. WEALTH at work is leading the way to provide a combined offering of financial education and Workplace ISA to ensure employees maximise the value of the benefits on offer to them and as such has educated over 8,500 employees in the last 12 months alone. Therefore, Financial Education is incredibly important, especially given the recent tax changes introduced.”

David Cassidy
Chief Executive Officer, WEALTH at work

 

workplace ISA - the valuable addition to employee savings choices.

Employees will have different savings priorities depending on their personal circumstances.

Whilst a pension is likely to remain an integral part of longer term savings, the Workplace ISA provides a flexible and tax efficient alternative for all employees with particular relevance for higher earners and share scheme participants.

 

the case for financial education.

Insufficient retirement savings, over indebtedness and lack of knowledge are all factors creating the need for financial education, but what are the considerations and benefits for a company in providing financial education to its employees?

The most significant is the need for employees to be made aware of the need to save; many employees face the prospect of an uncertain financial future unless they take action and increase their long term savings provision.

The benefits can be immediate, when presented in a coherent manner; financial education can be successful in ensuring that employees make the most of the financial related benefits available. As a consequence, greater value is derived from their employment whilst ensuring that the company remains competitive in the job market.

 

flexible delivery and support.

The provision of financial education will only reap rewards for the business if the delivery meets the needs of the employee base which may vary considerably from head office based to production or client facing employees. Seminars can be used to provide employees with an interactive learning experience although these may not always be practical. An online alternative provides greater flexibility and the forum for companies to respond quickly to specific events e.g. tax changes.

Whatever the format, employees often have specific queries post financial education and these can be dealt with where access is provided for further technical guidance and advice. This provides employees with the opportunity to turn the education into reality. Without this support the full value of the education may not be realised.

 

fully integrated.

Generic financial education may provide a useful introduction to the principles of personal finance but to ensure its practical application it must reflect the savings opportunities available to employees by virtue of their employment. The value of these should be highlighted whether it is pensions, share schemes or any other arrangements. A coherent message should be delivered as to how these benefits can work effectively together to contribute to the savings provision made by employees.

 

relevance.

The content must be relevant to the intended audience and reflect the life stages and specific events that an employee may be faced with. For example earlier in their career employees are likely to have shorter term financial goals such as paying off student debt or saving for a first home. Others may have retirement as their key savings goal and so the importance of creating a diverse and balanced savings strategy will be foremost. Specific events such as a maturing share or bonus scheme are likely to be relevant to a wider range of employees and therefore the content should reflect this.

 

taking action - implementation.

A thorough assessment should be made of the savings opportunities available to employees, the likely financial issues they face and how the business will be successful in securing employee engagement in providing financial education as an employee benefit.

 

CASE STUDY

Marks and Spencer sets store by education.

Marks and Spencer (M&S) offers financial education to all staff. It targets its 60,000-plus store staff through seminars and leaflets in association with the Financial Services Authority’s ‘Money matters’ programme, and its management staff through a partnership with WEALTH at work. The retailer’s head of employment relations and rewards, Deborah Warman, says: “Financial education is important to all employees.”

M&S started its financial education programme two years ago with targeted seminars for staff. “We wanted to get people to better understand their benefits package and what they could do with it,” says Warman.

Initially, about 100 management staff in long-term incentive plans were targeted through the WEALTH at work programme, followed by 300 more the following year. “We had such positive feedback, we then started to look at how we ran that more entensively,” says Warman.

A further 26 sessions will take place in the next six months. They have already included programmes targeting high earners.

Warman says the seminars have had a big impact on staff and are generally oversubscribed. “It has a wider impact than just them understanding their reward programme. It helps them to understand whether to save for the short term or long term. The biggest thing was that this was a personal offer that helped staff and their families. It was not just focused on business training.

“It is hard to quantify factually, but the softer side would suggest it has definately hit the mark.”

The programme has also helped retention, says Warman. “If you look at what it costs to recruit and get someone through the door, if you can retain someone simply by explaining their pay and benefits package, then it pays back”.

 

emergency tax changes introduced.

The Chancellor described his announcement as the ‘unavoidable budget’, given the need to reduce the budget deficit by cutting public spending and increasing taxes.

There was however a theme of simplification particularly in relation to the changes announced to capital gains tax and further amendments to the rules restricting tax relief on pension contributions for higher earners.

The most well publicised tax raising measure was to VAT, an increase from 17.5 per cent to 20 per cent effective from 4 January 2011.

 

all employees.

The increase in national insurance for employees from April 2011 mean it is ever more important for employees to make the most of the remuneration and benefits available to them, particularly those via a flexible benefits arrangement. Reinforcing the value of such benefits will help employees make savings.

 

share scheme participants and employee shareholders.

The increase in capital gains tax is intended for higher rate taxpayers yet may have wider implications. The addition of capital gains for a basic rate taxpayer could see a proportion of the gains taxed at 18 per cent with the remainder taxed at 28 per cent, if the basic rate tax limit is exceeded when the chargeable gain is added to income. With careful planning the impact may be mitigated.

 

higher earners.

Whilst the intention to simplify the proposed restrictions to pension tax relief is welcome, higher earners must still be aware of the previous governments ‘anti-forestalling’ legislation for the current tax year. From April 2011, a reduced annual allowance of between £30,000 and £45,000 may restrict some senior employees many of whom have become used to contributing a proportion of their variable pay to a pension. A savings alternative may be required.

WEALTH at work can help you respond to the various tax changes, providing effective communication, bespoke financial education and access to the savings alternatives your employees may now require.

 

key tax rates and allowances 2010 / 2011 tax year.

Income tax – personal allowance.

Aged under 65	£6,475
Aged 65-74	£9,490
Aged 75 and over	£9,640

 

Income tax – rates and bands

Basic rate 20%	£0 to £37,400
Higher rate 40%	£37,400 +
Additional rate 50%	over £150,000

 

Personal allowance is gradually removed for those with an income of £100,000 or more.

 

What does the WEALTH at work Workplace ISA offer?

• link to payroll for regular subscriptions of up to £850 per month deducted from pay
• additional and one off payments
• seamless transfer of shares from all employee share schemes
• ability to hold company shares in a tax efficient environment with the option to diversify if a greater proportion of wealth is held in the shares of one company
• a flexible range of investment choices that if required can broadly replicate your existing pension offering
• ability to transfer existing ISA investments to the Workplace ISA
• delivered via a bespoke website
• support through financial education

For more details please visit our Workplace ISA mini-site

 

flexible savings in the workplace.

By Jonathan Watts-Lay, Director, WEALTH at work

With the demise of defined benefit pension schemes the risk of ensuring that savings are likely to meet future income requirements now lies firmly with employees. Employees need to manage contribution levels, their on-going investment strategy and be aware of investment returns and growth. However whilst these are key factors in any defined contribution type pension arrangement there is a more significant consideration in helping employees secure their long term financial well being - that is flexibility.

 

contribution flexibility.

An employee may contribute to a pension via payroll deductions. However additional contribution flexibility may support them in contributing greater value, for example:

• Does the existing pension arrangement easily facilitate one off contributions e.g. cash bonus?
• Are pension contributions made via salary sacrifice with potential national insurance savings?
• If employees participate in share schemes does the pension facilitate in specie transfers from HM Revenue and Customs approved share schemes with potential income tax savings?

 

Income flexibility

In most cases employees will purchase an annuity to provide them with an income in retirement. However additional income flexibility supported by information and education may ultimately ensure employees achieve a greater income in retirement, for example:

• Are employees made aware of the retirement income options available to them, including unsecured pension?
• Does the existing pension arrangement support such alternatives?
• Do employees have access to tools and advice that will help them determine the most competitive and appropriate income in retirement?

 

NEW Savings flexibility

Increasingly companies are considering the range of savings vehicles that are made available to employees. Whilst a pension represents the core of an individual’s retirement savings strategy and will most likely continue to do so other opportunities may provide employees with savings flexibility and indeed encourage them to develop the savings habit:

• Would access to an individual savings account (ISA) with a subscription limit of £10,200 help those seeking to save tax efficiently, yet retain access?
• Should HMRC approved share schemes become an integral part of an employee’s savings providing the importance of investment diversification is highlighted?
• Will a deposit account with a preferential rate of interest support those with a shorter investment time horizon e.g. saving for a deposit to purchase property?

 

Delivering flexibility.

Delivering the flexibility referred to above requires two main ingredients, the capability to deliver the various elements and the need to engage and educate employees to ensure opportunities are maximised.

 

Capability

An assessment of existing provision must be made to determine where enhancements can be made and whether the additional flexibility can be delivered by existing providers. Achieving true flexibility is dependent upon presenting contribution, income and NEW savings flexibility in a cohesive way where it is viewed by employees as a single benefit.

 

Engage and Educate

Simply providing access to additional flexibility will not be sufficient in itself; employees need to understand the value of flexibility and how it will assist them in securing their long term financial well being. Employees need to take ownership to manage the risk of ensuring savings are likely to meet future income requirements - a risk that is now theirs to manage.

 

Find out what the experts think.

Find out the answer to this and more by watching the video highlights from the Pensions Insight's flexible savings round table debate, in association with WEALTH at work. Eight industry experts gathered from companies such as: BT, Mercer, Pensions Management Institute, Deloitte, Allianz Insurance, Pitmans Trustees and Towers Watson and looked at the issue of flexible savings from a variety of different viewpoints, some of which can be seen below:

“Traditional pension arrangements just don’t work anymore.” says Andrew Erhardt Lewis, Senior Manager, Deloitte.

When asked about flexible savings, Kevin O’Boyle, Head of Pensions, BT said “I think it works very well.”

Martin Good, Pensions Management Institute comments, “too many employers shy away from giving advice” and adds but “there is a certain amount of advice you could give and that’s what the employee really wants.”

Paul Brown, Principal, Towers Watson agreed that face to face communication was the most expensive but the most effective and said, “If people don’t understand the benefits, its pointless the amount of money you are spending on them.”

You can view this at Pension Insights magazine.

Learning points include:

• Flexible savings include short, medium and long term investments tailored to suit an individual’s needs
• Targeting is the key to successful engagement
• Clear information and guidance is necessary in order for individuals to make more informed decisions.

 

Ask the Wealth at work panel.

David Cassidy, Chief Executive Officer, Jonathan Watts-Lay, Director, Paul Bloomfield, Tax Specialist & Business Development and Jane Griffiths, Education & Client Relationship Manager.

Our panel of WEALTH at work experts answer the following GSIPP questions:

What impact do you feel the removal of the Age 75 rule will have on the Group SIPP market?

The removal of the age 75 rule for annuity purchase is likely to increase demand for group SIPP arrangements. Employers will seek to provide a pension arrangement that not only provides flexibility in the accumulation phase but also at the time employees begin to take their pension benefits.

The group SIPP arrangement will support both the capped and flexible drawdown options proposed by the new government whilst also serving the needs of the many who will simply buy an annuity.

There is likely to be new interest in the group SIPP market by those providers who may not currently offer a group SIPP, anticipating an increase in demand. This is further supported by the removal of the default retirement age which in future will mean employees demand greater flexibility in how they take their pension benefits and as a consequence are likely to remain invested for longer, making the group SIPP a more profitable product for providers.

How should these changes be communicated to members?

Communication and education in relation to the change will need to be provided to ensure members are aware of the choices available to them. Currently many employees will simply be made aware of a single annuity provider at the time they take their benefits. In future, communication and education will need to reflect the flexibility of timing in relation to retirement but also the various income options available, both of which are interlinked.

It is unlikely that passive communication forms e.g. booklets will suffice in delivering the information members will need to make decisions. A formal process of financial education is required, starting some time before benefits are likely to be taken. The content will need to reflect the need for members to assess their overall financial position when making decisions particularly relevant for those considering drawdown options.

What do you see as being the main challenges associated with this change?

A key challenge will be the changes employers and trustees will need to make to the choices presented to members to avoid the position where individual members may claim they have not been adequately informed and as a consequence have made an irreversible decision.

There will also need to be safeguards in place to ensure that those remaining invested via either of the drawdown options, do so in a responsible manner and are not unduly exposed to investment risk. The question of suitability is likely to be scrutinised in relation to any advice provided.

Providers will also need to consider the charges associated with the changes and whether the costs for updating existing product offerings are effectively passed on to members.

Do you think it will have an impact on how members choose to invest?

Members should reconsider how they invest in light of the changes. Flexibility of timing as to when benefits are taken will require members to review existing investments particularly if they are currently set to be taken at a set date and in their entirety. Many will now be taking a longer term view. This combined with the removal of the default retirement age will increase the requirement for advice reflecting the objectives and desired outcomes of individual members.

Have employers learned from the financial crisis?

It was only 2 years ago when the most unprecedented events happened in our financial history such as the near collapse of Northern Rock, HBOS, RBS and others.

Many individuals have been badly affected by this as the share price plummeted and individuals found themselves open to concentration risk by holding only their company stock.

The key to a successful investment strategy is the fundamental investment principle of - diversification - finding a happy medium between risk and return.

Jonathan Watts-Lay, Director of WEALTH at work comments, “We simply cannot forget the importance of diversification to avoid this from happening again. Even now as share prices start to recover, employers and employees should not become complacent and spread their risk by not putting all their eggs in one basket”.

 

survey results.

The financial well-being of employees is fast becoming a key element of corporate social responsibility in the workplace. Our research was conducted in May 2010 amongst key HR, Reward & Benefits and Pensions professionals. 42% of respondents were from the FTSE 350, 30% from large companies who employed over 500 employees with the remaining balance of 28% from smaller companies.

KEY FINDINGS

• 72% of companies believe that corporate reputations are potentially at risk if employees face poverty in retirement.
• 68% of companies provide financial education at retirement, but only 38% provide general financial education.
• 93% of FTSE 100 respondents think that the responsibility for the long term financial well-being of employees is shared between employers and employees.
• 76% of companies think that the provision of financial education is set to increase.
• If you would like to receive a copy of our report or discuss the findings in more detail, please visit: www.wealthatwork.co.uk/corporate/newsevents/stories/news0024.html

 

New joiners

Tina Ryatt, Corporate Relationship Manager

M: 07770 678956

Tina Ryatt joined WEALTH at work this year after gaining 18 years experience within Financial Services. Having worked at top tier companies such as Friends Provident, Threadneedle Asset Management, Prudential and Canada Life, Tina has gained extensive experience across the business’s, but has focused primarily on Relationship Management and Business Development.

As part of the Business Development team, Tina is responsible for managing relationships with major WEALTH at work clients, such as BP, British American Tobacco, Standard Chartered, LCH Clearnet and Mars.

 

May Al-Karooni, Business Development Manager

M: 07584 472092

May obtained a BA (Hons) Accountancy and Finance degree in 2001 and trained as an accountant before moving into the Financial Services industry, working for Friends Provident PLC as a Broker Consultant for 5 years.

There, May was awarded 'Broker Consultant of the Year’ for two consecutive years. She progressed into the investment arena where she raised finance for Venture Capital Trusts, Hedge Funds and structured products. May worked for Investment Bank, Close Brothers Group, as Sales and Marketing Executive, where she raised finance for Equities, International Property funds and Enterprise Schemes achieving fundraising in excess of £80 million. Close Brothers Investments became (for the first time) the UK’s largest fundraiser of VCTs in 2006. Following from this, May went on to run her own business and was responsible for Marketing, Operations and International Development.

 

How can we help?

Help your employees take control of their financial future with WEALTH at work.

1. Education

WEALTH at work tailors all financial education to the needs of each organisation and its employees - delivered via a range of mediums, from seminars to webcasts, with the objective of ensuring employees understand the value of their cash, share and pension benefits.

2. Flexible Savings Platform

The WEALTH at work Flexible Savings platform is one of our most important approaches. Designed specifically for the workplace, this brings together:

• Share scheme and pension modeller tools
• Inspecie transfers of company shares to pension and ISA
• Diversification of company stocks to ensure employees don’t have all their eggs in one basket
• Bulk pension transfers
• Annuity broking
• and much more.

3. Advisory services**

You can give employees the option to meet with one of our professional Strategic Investment Planners to review their current investments and financial objectives. After an in-depth review, they can receive an Investment Planning Report, recommending a suitable investment strategy.

**Available to clients with £20,000 in investment assets.