This tax year (2018/19) is the last opportunity to carry forward any unused Annual Allowance from 2015/16. This could be particularly relevant for any of your employees who meet the definition of a ‘high income individual’ (the definition is complicated but could apply to an employee with total taxable income from all sources of more than £110k).
Based on our research into employee behavior around pensions and saving, we’ve put together 7 simple ways you can communicate this message to your employees.
Since April 2016, high income individuals have been affected by a tapering of the Annual Allowance, the maximum amount of pension savings an individual can make each year before pension contributions are taxed. The standard Annual Allowance is £40,000 and includes total contributions from all sources, including employers. If an individual exceeds the Annual Allowance, they may have to pay a tax charge of up to 45% (46% for Scottish tax payers) on the amount that is in excess of the annual allowance.
2015/16 was the last tax year when the Annual Allowance was £40,000 for most people, and individuals now have a final opportunity to carry forward any unused allowance from that tax year if they have maximised their Annual Allowance in the current tax year. From 6 April 2019, the 2015/16 tax year will no longer be open for carry forward purposes and the allowance for 2016/17 tax year could be subject to the tapering rules.
As an employer, you can help higher earners understand that they have a ‘use it or lose it’ opportunity, which could save them from a significant tax charge. While there are no legal requirements to communicate about this, it’s information that any employee would be very grateful to receive. It also may be useful to communicate the carry forward message to all staff – since some employees, who may not be high earners, may still wish to maximise contributions to their pension scheme.
So, how should you communicate this to your employees? Here’s 7 easy tips, drawn from our own 2018 survey, which polled over 2000 employees¹:
1. Simple email
A simple email with a detailed briefing note attached could be used. This allows for message hierarchy, whereby the ‘carry forward opportunity’ is communicated first and foremost without additional detail diluting the message.
2. Online learning
Alternatively, employers could use online learning modules, such as videos. ‘Watch-able’ solutions are known to engage more people. 28% of smartphone users watch at least 1 video a day – why not make it yours?²
3. Send it home
Employers should remember to make information available at home as well, as 77% (of those earning £110k or more) prefer to make pension decisions at home rather than at work.
4. Extra support
Pensions are a tricky subject, particularly for those with limited financial knowledge, so additional support could be offered.
A seminar hosted by a pension professional or one-to-one session can be beneficial in terms of encouraging conversations. They will enable people to ask questions and ensure their understanding is correct.
Reminding people of key considerations and next steps is important. People are busy and can forget to act, so reminders are useful in engaging people more with their pensions.
Don’t be afraid to repeat messages. 62% (of those earning £110k or more) want to be reminded on what they need to do, even if they don’t respond.
Wondering whether you’ll be listened to?
Our research highlighted how highly employees value their employer’s communications about pensions. 81% of employees earning £110K plus said they want their employer to keep them up to date on new and important things.
The research also found 73% want to be proactively educated about their pension by their employer, 73% will respond to a communication if it makes them feel like there is value for money and 78% want their employer to speak to them about pensions at the end of the tax year.
¹ Punter Southall Aspire survey, 2,037 respondents, June 2018