From the LAPD to EBC
A few years ago, my manager (friend, mentor, ally) James Biggs and I were discussing books and writers we like. We discovered we have a shared love for Michael Connelly’s crime novels, 28 of which feature the Los Angeles homicide detective, Harry Bosch. Bosch’s motto — Everybody counts or nobody counts — means that he tries to hunt down all killers with the same singleminded determination, regardless of their victims’ status. James and I agreed that this was also an axiom of ours, working in the pensions team at Employee Benefits Collective (EBC). In workplace pensions, all employees are equal.
SMART isn’t always smart
A recent minor occurrence brought this to mind. When composing pension scheme governance reports, I invariably ask pension providers to supply a bulk data download — a spreadsheet containing details of scheme members’ age, salary, contributions, fund value, investment strategy, and so on. I do this mainly so that I can check how many employees may need guidance about allowance thresholds and retirement options. I also keep an eye out for anomalies. I noticed in a recent spreadsheet that two recently enrolled pension joiners at an SME we look after, who were earning enough to pay NI but not to pay income tax, were contributing via SMART. Somehow, they hadn’t been properly assessed by Payroll.
Just to clarify: SMART (Save More and Reduce Tax) is what we call salary sacrifice. It’s a snappier and more user-friendly term; the word sacrifice makes it sound as though something is being lost rather than gained. SMART allows both the employer and most employees to make NI savings.
Employees earning less than the income tax threshold (£12,570 in 2021/22) don’t benefit from SMART, however. If non-taxpayers contribute in the ‘traditional’ net-contribution-from-net-salary way, they are still entitled to a 20% basic-rate tax uplift, so that every £80 paid in is grossed up to £100 in their pension. This far exceeds the NI saving they would make with SMART.
I had a chat with the HR director at the company and the two employees were removed from the SMART scheme.
Size doesn’t matter
I’m using the above example of being able to help a couple of ordinary people precisely because it is so minor and incidental. It was for me, at any rate — increasing the value of their pension contributions by the best part of 20% represented a significant gain for the two employees. To make a different point I could easily have adduced wholesale changes to pension schemes we’ve made that have greatly benefited large workforces instead; but I wanted to focus on something small. Scale isn’t a deciding factor. We’re there for the average punter and that is what appeals to me about working in employee benefits for EBC.
I worked for a while in wealth management. The incremental banning of commission on selling many financial products that followed the Retail Distribution Review (RDR) made the importance of each of their clients to financial advisers very clear. The RDR was broadly a good thing but there’s no doubt that it widened the so-called advice gap. It’s rather reductive to state it as baldly as this but it’s true enough: individual clients’ value to financial advisers is directly proportionate to their net worth. Resources are allocated accordingly.
This simply isn’t the case at EBC. If the employer cares about employees and their pension and is therefore willing to pay for governance, financial education, 1:1s, and so on, all employees are entitled to equal attention from EBC. Imparting some key pension info, giving some basic guidance: frequently, this can have a huge impact on employees’ financial wellbeing. Different cohorts require different types of guidance, of course, and higher-earning employees generally need more of it, but still: everybody counts or nobody counts.