United Kingdom: Market Guide for Employee Benefits Practitioners

Expanding a business into a foreign country can be a daunting task. There are a countless number of things to take into consideration and an unending supply of decisions that will need to be made during the process. Some of these decisions will need to include the types of employee benefits that will be offered to employees in the new country. As one of the largest budget categories of any business, and one of the key factors in attracting and retaining new talent, it is vital not to overlook the importance of employee benefits when expanding internationally.

The following market guide is intended to provide some basic information regarding the current state of the employee benefits market in one of the 56 countries that Asinta Partners are located in around the world. This month’s pick is the United Kingdom, home of Asinta’s Partner, Punter Southall Health & Protection.

The United Kingdom By the Numbers:

  • Population: 65 Million (Worldometer.info, 2016)
  • GDP Rank: 5th in the World (World Development Indicators, World Bank, 2016)
  • Total Land Area: 241,959 square kilometers (93,421 sq. miles) (Worldometer.info, 2016)
  • Urban Population: 81.5% (Worldometer.info, 2016)
  • Median Age: 40.1 (Worldometer.info, 2016)
  • GDP Growth Rate (2015): 3% (Forbes, 2015)
  • Forbes Best Countries for Business Rank: 10th Worldwide (Forbes, 2015)
  • Pension Age: 65 for men; 63 for women

Types of Employee Benefits Offered

There are several types of employee benefits that are typically offered to employees living within the United Kingdom. Some of these are required by law, while others are not.

  • Pension – Largest Benefit Cost
  • Life Assurance – Normally Very Generous
  • Medical Insurance – Lower Cost (Optional)
  • Income Protection (LTD) (Optional)
  • Dental – Rarely offered in the UK; when offered it is usually done so by a US owned company within the UK

Getting Established

As with a new business venture in any country, the first step is to establish a legal entity and choose the appropriate business structure for the company within the United Kingdom. Most businesses in the UK are sole traders (self-employed), limited companies or partnerships. While owners of companies doing business in the UK often live there as well, a private limited company needs only to have a registered office in the UK; company directors can live elsewhere. Hire a lawyer who is well versed in companies looking to expand into the UK to help you take these critical first steps to opening your new office.

For more information about setting up a business in the UK, you can visit the UK government’s guide here.

Pension Plans

There are three major categories of pension schemes (or plans as they are often referred to outside the UK) found within the UK. These three categories are state pensions, occupational pensions, and individual/personal pensions. Note: In US-centric companies, the idea of a “pension” can often be viewed as an employee benefit not offered but as employee benefit practitioners it is important to recognize that around the world any retirement fund, even a US 401k plan, is a type of pension or rather if you prefer, a retirement savings vehicle. Each of these categories is, of course, further split into sub-categories, which we won’t delve into here.

The state pension plan provides basic pension coverage to citizens in the UK in order to prevent poverty in old age. The amount of pension received is based upon the National Insurance record of each individual. A qualifying year would be any year in which the employee contributed to the National Insurance plan based on the employee’s earnings. Thirty-five qualifying years are currently required (since April 2016) for citizens in the UK to receive the new full state pension.

Occupational pensions are required to be provided to employees by their employers under UK law. These pensions are normally a part of the employee’s benefits package and are typically jointly funded by the employer and the employee. The employer places a set percentage of their employee’s salary (1-12%) into their pension fund, and a pension is then purchased upon retirement. Employers are now required to automatically enroll their employees in these occupational pension plans.

In the past, employers offered their employees Defined Benefit schemes. These schemes were typically difficult to manage. With increases in longevity and reductions in interest rates, these schemes became more and more unaffordable, causing companies to owe large sums of money to their employee’s pension schemes.

These Defined Benefit schemes in the UK have now largely been replaced by Defined Contribution schemes. Since contributions to these schemes is based upon a set percentage of an employee’s salary, these schemes are much easier for an employer to manage.  Although these schemes are now the norm, it is important for anyone who is considering purchasing a company in the UK to fully understand the state of that company’s pension schemes, as some companies still owe very large amounts of money to their legacy Defined Benefit schemes.

Life Insurance

Life insurance (life assurance in British English) is generally a low-cost benefit in the UK. Life insurance coverage is typically offered at four times the amount of an employee’s salary. The benefit is paid out through a trust, which is a legal entity that decides where the life insurance benefits will be paid upon the employee’s death. Choosing the proper trust is absolutely vital; life insurance benefits paid out through the proper type of trust at four times the employee’s salary are tax-free in the UK. If the wrong type of trust is chosen or no trust exists, then the benefits will be liable to tax under UK law. The trust has the responsibility to ensure that the life insurance benefits are paid out properly upon the employee’s death, even if that means that they need to investigate the life of the person who died first.

Life insurance is not usually provided with any other ‘rider’ type of benefits in the UK, such as permanent disability or chronic illness. Life insurance typically covers nearly all types of death, however, even including suicide and AIDs. Life insurance is a very popular benefit to ‘pool’ and premiums are typically defined by average age, occupation types, and disclosures regarding ill employees.

Medical Insurance

Medical insurance is an optional benefit in the UK, as the state health care scheme is free to everyone who pays income tax and their families. This is provided by the National Health System (NHS). In the UK medical insurance is only bought for about 9-10% of the employed population, with 90% of UK citizens having no medical insurance. Medical insurance coverage fluctuates largely depending upon the type of industry. Lawyers and bankers usually have medical insurance, and high tech fields are also mostly covered by medical insurance. Other fields, such as retail, typically do not have medical insurance. Location also makes a difference in medical insurance coverage; companies in London have more pressure to provide this type of benefit, as waiting lists for NHS services can be longer than in other areas in the UK. Coverage usually costs 770 pounds per employee per annum. Medical insurance benefits are highly taxed, however, with employees and employers paying taxes that equal about 60% of the benefit amount.

Income Protection (LTD)

Income protection is an optional benefit in the UK that is not very common. Coverage is based on industry and salaries.

Dental Insurance

This is rarely provided for by UK companies. When it is provided by an employer in the UK, that employer often ends up being a US-owned company. Dental is typically less expensive in the UK than in other countries and dental care is usually handled on an as-needed, medical basis and not as a cosmetic option.

Modernization

Benefits in the UK are evolving such that more benefits are being offered as wellness programs that focus on health screenings, exercise initiatives, and other similar programs. The hope is that eventually, 75% of the employed population will take part in two wellness programs a year. Participation could be a class on nutrition, a yoga class or a massage, for example.

Many employers are also shifting the culture of the workplace, with more employees being offered the flexibility to work at home and with office space that is more geared toward collaborative environments. This change is becoming a key factor for finding and retaining employees.

Finally, online portals are starting to become communication hubs to connect employees with a range of voluntary options.

Punter Southall Health & Protection: Experts on Employee Benefits in the United Kingdom

Expanding your company into the UK is a big step, but it isn’t one that you need to walk alone. Since 1988 Asinta’s Partner in the UK, Punter Southall Health & Protection has been providing their clients with health & protection programs, actuarial consulting, pensions administration, defined contribution consulting, international consulting, investment consulting and transaction services from 15 offices across the UK.

Not only are they experts in the UK, but the team at Punter Southall are also experts at working with companies based outside of the UK who are looking to expand into the UK. Through their Partnership with Asinta, Punter Southall’s Teresa Wighton, regularly helps international companies get started in the UK. She’ll give you professional, personalized service that is geared specifically for you and your company. Once your company is a success in the UK, she’ll even be able to refer you to the local expert in any of the 56 countries worldwide that she is Partnered with through Asinta, when you are considering your next international expansion.

You can contact Teresa today via her contact page.