Considering The Value Of Employee Benefits

A recent survey by Punter Southall Aspire showed pensions have regained their spot as the most valued employee benefit, according to Luke Norman, Chartered Financial Planner at Progeny, with flexible working having topped the list for the past two years.

It is no surprise that pensions have come back into focus at a time when pay increases are struggling to keep pace with inflation. Also, it’s a reminder that financial employee benefits, part of an overall package additional to the salary figure, should not be overlooked.

Benefits packages can vary widely between employers but here, we look at some of the most commonly offered financial workplace benefits and consider their value.

Pensions

All employers are legally required to provide a workplace pension scheme and automatically enrol qualifying employees into it, known as auto-enrolment.
With auto-enrolment, both employers and employees’ personal contributions combined must meet a minimum contribution level of 8% of ‘qualifying earnings’ in 2023/24 – at least 3% of this must be from their employer, with the employee responsible for the remainder required to make a total of 8%. Employees and employers can also decide to contribute more than the minimum amounts.

For example, based on the minimum contribution level for a salary of £40,000, an employer would contribute £1,012 per annum. However, if they matched the employee’s 5% contribution, this increases to £1,688 per annum, which provides a considerable boost to pension savings each year, without any additional input from the pension holder.

Health and life insurance

A common benefit is death in service cover, which provides a lump sum to a person of the employee’s choosing in the event of their death whilst employed. The tax-free lump sum provided is typically two to four times the employee’s annual salary and can provide a valuable boost to an individual or family’s financial security in the worst-case scenario, especially when the person who dies is the primary financial provider for the family.

The added benefit of this type of cover is that it is not generally underwritten on an individual basis, meaning anyone with pre-existing health conditions may be able to gain a level of life insurance which may otherwise have been unaffordable. However, it’s worth noting that this cover ends when an employee leaves their current employer, meaning it is generally not appropriate to view this as a replacement for any separate life insurance.

Benefits in relation to ill health also help to provide financial resilience. These are often in the form of income protection, a type of insurance which pays a percentage of an employees’ salary to them if they are unable to work for pre-defined period of time due to ill health, or as health insurance, to cover all or the majority of the cost of employees receiving private treatment in a more timely manner.

Share-based remuneration

Some employers choose to incentivise employees by offering them shares in the business. This type of remuneration allows employees to benefit directly from the growth and success of the company because the shares may increase in value if the company performs well, essentially increasing the value of the financial package.

There are a number of different types of share schemes, some of which provide advantageous tax benefits for employees, or even offer the opportunity to acquire shares at a price below the market value.
However, there can also be some disadvantages, including the fact that share prices can drop as well as rise, in line with business performance and employee shares in an unlisted company are hard to value and sell, so these could be viewed as a more speculative type of benefit.

Travel benefits

Travel benefits are a common perk and can come in many forms. Company cars or car allowances can typically provide the largest financial benefit for employees, although if they are employed for personal use, which includes the commute to and from work, people do need to be aware of the tax implications, especially if they are a higher earner or drive an expensive car with high CO2 emissions. Many companies also offer public transport season ticket loans, which can considerably reduce the cost of an employee’s annual commute.

Another increasingly popular travel benefit is the cycle-to-work scheme, which allows people to purchase a new bike and cycling equipment, spreading the cost over a pre-agreed time period and deducting the repayments from pre-tax income. This means employees can save Income Tax and National Insurance on repayments, providing an attractive discount on new cycling equipment for commuting.

Assessing your benefits

One way of quantifying how much financial value any given benefit provides is to consider the cost to replace that benefit per year. Alternatively, an employer may be able to provide an indicative value for an individual’s benefit package.

To review workplace pension contributions , Money Helper offers a useful pension calculator, which shows the total per year paid into a pension by an employee and an employer, to easily see the impact of differing contributions.

People often just think of their salary when reviewing employment opportunities but having a good understanding of the full benefits package helps them to make more informed decisions, take full advantage of what is currently available to them and build financial resilience.