Aon says that the way employers provide life cover to employees is also in the spotlight. Cover on a ‘registered’ and ‘excepted’ basis is now treated differently for Benefit in Kind (BIK) purposes and given the rising popularity of excepted arrangements, there is significant additional complication for employers.
Polls from a number of Aon events discussing OPRA show that many employers (40%) are utilising the ‘grandfathering’ option in order to maintain the previous taxation position as a short-term approach by locking down flexible benefit choices until their next renewal.
However, Aon warns this is a short-term method which can only be utilised until the next renewal date, or 5 April 2018 at the latest.
Employers that have made decisions to deal with changes in the short-term are now likely to need to create long-term solutions. In many cases, employers have discovered that the complexity of the same benefit being treated differently for BIK purposes means their current benefit design is no longer feasible. Employers are also reconsidering their past reasons for benefit design, such as how life cover is provided.
Catherine Stait, principal at Aon Employee Benefits, said: “There are many aspects to consider, particularly for life cover, as the implications of the changes are being underestimated until the mechanics are considered. The majority of clients are realising their current designs or procedures need to be refined or even fundamentally changed. We urge employers to make well-informed decisions to avoid disgruntled employees, but we are equally cautioning against the existing rationale for designs being automatically disregarded just because of potential BIK implications. In short, the benefit in kind tail shouldn’t wag the flexible benefits dog.
“It’s clear that robust employee communications are essential, particularly if employees are given the flexibility to choose the nature of cover, for example, life cover. With ever-increasing flexibility of choice and the proven need for financial wellbeing education, communication will be pivotal to successful employee engagement.”
Aon will be running an OPRA update webinar on Tuesday 7 September at 11am on salary sacrifice ‘Are you and your employees ready for the tax charges which will apply from April 2018 at the latest?’
Aon urges employers to consider these issues without delay and the webinar will focus on potential group life and income protection redesign considerations. Register for the webinar now.
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