UK Employee Benefits Compliance Global Update

UK Employee Benefits ComplianceHowden Employee Benefits and Wellbeing brings you this UK Employee Benefits Compliance Global Update for April 2024. Inside, you’ll find current information about changes to childcare support, national insurance contribution levels, menopause leave, pension policy changes, lump sum limits, and early age and occupational pensions.

Childcare support changes

As of April 2024, the UK is expanding childcare support for working families. The increases in support will continue to occur until September 2025.

  • In April 2024, 15 hours of childcare are available to eligible working parents of 2-year-olds.
  • In September 2024, 15 hours of childcare will be available to eligible working parents of 9-month-olds to 2-year-olds.
  • In September 2025, eligible working parents of 9-month-olds to school-aged children will have access to 30 hours of childcare per week.

National insurance contribution reductions

As of April 6, 2024, the employee Class 1 National Insurance contribution was reduced by 2%. The contribution now reflects 8% of an employee’s pay rather than 10% previously and 12% prior to that. This reduction will help to pay for the increased cost of living.

However, the tax thresholds being frozen until 2028 will mean more individuals fall into the higher-rate tax bracket as inflationary pay increases take employees’ pay above the upper threshold.

The reduction in NIC would make a notable difference to many employees, particularly in Scotland, potentially improving their financial stability and enabling greater flexibility in budgeting and saving.

Howden partner’s view: Regarding National Insurance, this change means that an average worker receiving £35,400 per year will receive a tax cut of over £450. Having more take-home pay could, of course, help people with cost-of-living challenges or prompt some to increase their pension contributions.

Menopause leave

In February 2024, the Equality and Human Rights Commission (EHRC)  provided new guidance regarding menopause leave in the workplace. This guidance highlights that symptoms of menopause may be considered a disability under the Equality Act 2010, and employers are under a legal obligation to make reasonable adjustments and avoid employee discrimination.

Howden’s view: This is a great step forward, as it recognizes the debilitating symptoms that can affect women during menopause. Businesses should familiarize themselves with the guidance and ensure that they have relevant policies and support (for example, access to Occupational Health) in place to ensure that they are meeting this.

Pension policy changes and new lump sum limits

As of April 6, 2024, the UK has abolished the Lifetime Allowance (LTA), which was introduced to limit the amount of tax relief that a person can benefit from in their lifetime. Pension contributions above this limit were subject to taxes. The objective of removing this limit will encourage individuals over 50 to return to work and incentivize further earnings without a pension tax limit.

With the removal of the LTA, two new limits are being introduced to control tax relief on lump sums including the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance (LSDBA).

  • Lump Sum Allowance: Adding a limit of £268,275 (25% of the LTA), on the tax-free element of lump sums at retirement.
  • Lump Sum and Death Benefit Allowance (LSDBA): Adding a limit of £1,073,100 on the total amount of the tax-free part of lump sums and lump sum death benefits payable to an individual.

*It is important to note that this amount will be reduced by the payment of certain other benefits, such as the payment of a pension commencement lump sum (“Lump Sum Allowance”), together with any other registered lump sum payments.

Discussions around the ‘Pot for Life’ proposals, which aim to provide savers with flexibility by allowing them to maintain a single pension pot throughout their lifetime, are very much ongoing.

Howden view:  The abolition of the Lifetime Allowance from April has been confirmed. However, whilst the lifetime allowance is abolished, new allowances such as the lump sum allowance and the death benefit allowance have been introduced, each limiting the tax-free benefits that can be paid.

Early Age & Occupational Pensions

The Finance Act 2022  increased the minimum early pension age under occupational pension schemes from 55 to 57 with effect from 6 April 2028 (certain exceptions would apply for those with an unqualified right to retire before this age and members of uniformed public service pension schemes).

Pension dashboard 

The Pensions Dashboards Regulations 2022 were approved by the parliament and came into force on 12 December 2022. The system, managed by the Pension Dashboard Programme (PDP), will provide people with information on all their pension savings and entitlements, state, workplace, and individual pensions, in one place.

All FCA-regulated pension providers will need to connect to the system by the end of August 2023, with some exceptions (where the deadline was pushed back to October 2024). The proposed FCA standards would allow pension providers to offer additional services within the dashboard, such as pension advice, modeling, and calculators. The consultations should be closed in the winter ahead of the government’s final approval.

The Annual Allowance and Tapered Annual Allowance

From 6 April, the annual allowance will increase from £40,000 to £60,000, which is the maximum annual allowance. However, it is tapered for individuals with an adjusted income of over £120,000 and a threshold income of over £200,000. One pound of every £2 earned above an adjusted income of £260,000 will be lost, tapering down to a maximum contribution of £10,000 if adjusted earnings exceed £360,000.

See the tables at the bottom of this Howden webpage for a simplified explanation.