The annual reviews that Chase de Vere conducts for clients unearth a remarkably wide range of issues that need addressing.
And the fact that the lion’s share of these crop up on schemes that have recently joined us from other advisers suggests that not all our competitors have been giving much bang for the bucks they charge!
In fact, we probably uncover mistakes on around half of new switched schemes. For existing clients, on the other hand, changes resulting from annual reviews primarily reflect the need to keep up to date with new regulations or to switch to more appropriate arrangements in a fast-changing marketplace.
Most frequent errors
The most common area for uncovering hidden errors with switchers is the paying over of contributions from salary exchange – where tax and NI savings can be realised if employees agree to exchange part of their salary for an increased employer contribution on pensions certain other exempt non-cash benefits.
For example, we find some companies have been deducting salary exchange correctly from pre-tax pay but haven’t been making the right payments to their pension providers – who may then reclaim tax that isn’t due.
Whilst this can be undone, it can cause considerable administrative hassle. In some cases the incorrect practices have been taking place for years, with tens of thousands of pounds being involved. And one shouldn’t underestimate the ill will that could have been generated amongst employees who have experienced unexpected pension shortfalls.
Additionally, we often see cases where employers haven’t correctly calculated employer or employee pension contributions, or both. There can be confusion about the correct percentage to take, or contributions may not match what is stipulated in the contract of employment.
Contributions may also fall below the statutory minimum, or only get deducted from basic pay and not from other pensionable elements like bonuses and holidays.
Furthermore, it is surprising how many employers have been forgetting to automatically enrol eligible employees to their pension scheme and failing to issue statutory communications on time.
Statutory auto-enrolment communications – particularly postponement notices – are a particular problem area, and in some cases this is because employers believe that it is something their pension provider will be doing on their behalf. But not all providers can or will do it.
If there had been sufficient input at outset from employers, intermediaries and product providers, such situations are much less likely to have arisen. And that is exactly why Chase de Vere makes providing support with the implementation of salary exchange and auto-enrolment such high priorities.
Another common problem uncovered with recently switched schemes is failure to have amended the expiry age for group risk benefits following the abolition of the default retirement age in 2011.
Benefit termination dates on group risk schemes should have been changed to the greater of age 65 or State Pension age. Otherwise, employers are potentially exposed to uninsured liabilities for benefits that arise after the age still stipulated in the cover.
But many employers have mistakenly assumed that such changes were automatically put in place for them. So, we are still coming across fixed termination ages of 65 or, more worryingly still, 60.
There are also a number of recent switchers who haven’t been correctly accounting for taxable benefits. Some, for example, don’t realise that employees are liable to a P11D liability on company-paid private medical insurance, critical illness cover, dental insurance or health cash plans.
But it is the employer’s responsibility to ensure the correct forms are filled in so that employees can pay the right amount of tax.
Additionally, we have come across cases of employers not having understood that, due to the terms of their employment contracts, they are required to maintain both employer’s and employees’ pension contributions during maternity leave where salary sacrifice is in place – an error that could spell big trouble at an employment tribunal.
Fortunately, all these mistakes are things that we can put right when conducting annual reviews for clients. So, we hope that this has provided further insight into just how valuable such reviews can prove.
If you would like to find out more about Chase de Vere’s annual reviews or about any other aspect of employee benefits then do not hesitate to contact us.
Content correct at the time of writing.