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Package deal

I have just joined a new employer and have been given a 50-page explanation of what benefits are on offer to me. Can you briefly explain the main benefits that I should be looking out for?

Many employers offer their staff a range of benefits as well as salary and bonus but these are often not communicated as well as they could be.

You may have to make an active decision to receive some benefits but enrolment could be automatic for others. It is important that you contact your human resources department to check what is on offer and ensure you are taking advantage of these benefits.

Typical benefits might include some of the following.

Life insuranceThis is often four times salary. Remember that if you leave the firm, you will lose the insurance. To make sure your family is well provided for in the event of your death, it often makes sense to have some insurance outside your employer’s scheme. For many people, life insurance of four times salary will not be nearly enough.

Income protectionBig employers often give you up to 75 per cent of salary, minus state sickness benefits, in the event of long-term illness. Many employers will give you your full salary for six months. Income protection through your employer is usually based on basic salary, not bonus, and is generally taxable so it might not be enough to protect you and your family.

PensionThis could be a final-salary scheme, if you are lucky, or a money-purchase scheme such as a stakeholder plan. It is important to understand whether the pension scheme falls under the occupational or personal pension rules.

A group stakeholder scheme, for example, would be classed as a personal pension and so a higher-rate taxpayer would need to claim higher-rate relief through their tax return as it does not happen automatically. Many people are not aware of this and could be missing out on substantial tax rebates.

Many employers will match any contributions you make up to, say, 5 per cent or even 10 per cent. That is a fantastic benefit – free money – and usually well worth taking advantage of.

With final-salary pension schemes, it can often make sense to buy added years in the scheme, particularly if you feel your pensionable pay is likely to increase at a good rate.

It is surprising how many people are not making the most of their employer-sponsored pension and we generally put this down to poor communication between a company’s HR department, employee benefit advisers and staff.

Share schemesOffering share-option schemes to employees is an increasingly popular way of giving workers a stake in the companies they work for.

Many big firms will offer SAYE or sharesave schemes which allow employees to save between £5 and £250 a month for three, five or seven years.

Employees get a tax-free bonus if they complete the savings plan. At the end of the period, employees can choose to use the money saved, plus bonus and interest, to buy shares (if buying shares would generate a profit) or have their contributions returned plus interest (if this would give the higher return).

SAYE schemes offer huge upside potential with minimal risk. Essentially, if the share price falls during the period, you still get back your savings plus tax-free bonus, so the only risk is that you could have received a slightly higher return in a conventional savings account. They are one of the few no-brainers in personal financial planning. There is usually a fairly narrow period in which you can join the scheme, so make sure you do not miss out.

Other employee share schemes can involve giving free shares to staff, granting options to buy shares at a set price after a specified period of time or allowing employees to buy shares and matching these with free ones.

Other benefitsIncreasing numbers of employers are now offering flexible benefit packages through which you can buy extra holiday, childcare vouchers, life insurance, home computers, critical-illness cover, medical insurance for the family and so on. Such schemes are fantastic because many of the benefits you buy are tax-deductible, so the cost comes off your pre-tax salary.

Jason Witcombe is a director of Evolve Financial Planning


Historic events

In this last in the series on the taxation of investment life insurance policies effected by companies, I would like to look specifically at how the new loan relationship rules are applied when the investing company adopts an historic cost basis of accounting in respect of the investment. I looked last week at how the fair value basis operates. The Finance Act anticipates both bases.


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