Marginal Gains – August 2023

With Summer upon us you would be forgiven for not really knowing it has arrived, the sun has not really had his hat on, more like his rain mac! We are starting to see the green shoots of the markets settling into their stride and inflation coming down slowly but surely, Interest rates are still an issue and it will be interesting to see if the Bank of England make another rise or leave things stable and see how inflation settles.

This month’s focus is on the corporate side of our business as we have an employer seminar booked for the 12th of September so please have a read and let us know if you would like to attend.


Death in Service for Dummies

You’re an employee. Your employer operates a Death in Service plan (sometimes known as Group Life Assurance) and you can sit back knowing that if you die, a capital sum equal to a multiple of your salary will be paid to your nearest and dearest, and the cost of the cover is paid for by the employer. Tickety and boo, you’d probably say!

But is it enough?

Death in Service requires that you are an employee of the employer at time of death (the cause of death doesn’t have to be work related nor does death have to occur in work time). You can’t use it as cover against a mortgage, for example, because on changing job, you may lose the cover if your new employer doesn’t offer a scheme and you may forget to check.

Death in service is a very valuable benefit, but it doesn’t replace standalone cover to protect liabilities like a mortgage. It does provide a financial cushion for those you leave behind – a spouse and young children, for example.

What is that Expression of Wish/Nomination of Beneficiary form all about?

Well, it may be obvious to you who should get any money on your death because you know your own situation inside out. But, by definition, you won’t be there when there is a payout and it may not be so obvious to someone looking at your situation from a different standpoint.

An Expression of Wish says who you would like the money to go to. It can be updated as your circumstances change. It is not a legally binding document, but it is a major factor in deciding where benefits are paid to.

The reason it is not legally binding is twofold. Firstly, because it is not a binding instruction, any money paid out will not be considered part of your Estate and, therefore, will not be assessed for Inheritance Tax. Secondly, you may have completed a form many years ago and not updated it, but your circumstances have changed e.g. you were single and have subsequently married or you were married and have divorced.

The people who decide where the money eventually goes can look at your circumstances at the date of your death to determine the most appropriate recipients, but their first point of call will be the latest signed form. Therefore, you should always review your beneficiaries when your circumstances change.

Remember your pension

The Expression of Wish you sign for your employer’s Death in Service scheme isn’t the same as the form you sign saying what you’d like to happen to you pension money on your death. You’ll need to complete one for that too.

So, next time your employer sends round an email asking you to review your Expression of Wish, don’t just delete it or put it on the ‘To do (but only rarely gets done)’ pile, make it your priority to complete it and return it asap! Even if it’s only duplicating the information you gave at the same time last year. A recently signed document carries far more weight than one from 10 years ago.


When employing someone is a bit like marriage

Spouses, be they the legally recognized type or those that used to be referred to as common law, rely on each other. It goes without saying. Responsible spouses will ensure they have sufficient cover in place to ensure that the loss of one will not cause financial disaster for the survivor. It stands to reason, doesn’t it?

Employees are key people

Employers don’t marry their employees but that doesn’t mean to say that the death of an employee wouldn’t have a financial impact on the employer. Particularly if the employee is a key person.

What constitutes key will vary across employers – it could be an employee with particular technical or client knowledge; a salesperson who consistently hits targets; or someone who may be difficult to replace at short notice (a competent FD or HR Director, perhaps). A key person is defined by the employer, no one else.


Employers can take out insurance for key people. The cost will depend on the employee’s age, state of health, smoking status etc. as well as the level of cover required, the period of cover and what type of cover is required. Cover may be for death only, death and/or diagnosis of a specified critical illness at a specific level of severity, or inability to work through illness or accident.

The amount of cover is decided on a case-by-case basis. It can be a multiple of salary, based on the person’s contribution to profits or just a best guess of the cost of replacing the key person. Costs for replacing a key person will include headhunter fees, golden hellos, and the cost of a temporary replacement while a permanent one is found..

Insurers generally don’t ask too many questions about the level of cover on people up to their 40s with clean medical histories, until the amount of life cover exceeds £1m or critical illness cover exceeds £500,000.

The adage still applies today. You’re an employer. You insure your premises, your machinery, your cars, your computers, your public liability against financial losses. Why don’t you insure your staff against the same?


When tax is voluntary

Employees and employers pay Income Tax and National Insurance (NI) – both are taxes despite the differing names. Naturally, we moan about paying any of it because who likes paying tax?

So why do so many of us – employers and employees alike – pay it voluntarily when there are simple means available not to?

Tax relief

All employers have to offer a workplace pension scheme and most employees will be contributing members of those schemes. Many of those schemes are ‘Relief at Source’. “What the heck is Relief at Source?” I hear the more delicate among you cry. Let me elucidate…

Under Relief at Source, the employer pays the employee their full salary including the pension contribution and because it’s hit the PAYE system, tax and NI are deducted. Immediately, the employer takes the pension contribution back for onward transmission to the pension company. As tax has been paid on the pension contribution, the employer deducts the net amount and the tax is given back in the pension plan. The NI paid by employer and employee can’t be recovered.

Put another way, the pension contribution is given and then immediately taken back and the consequence of this is 12% employee NI and 13.8% employer NI on the gross pension contribution. The tax side balances itself out since the tax paid is reclaimed from HMRC.

Salary exchange

So, how do you avoid these voluntary taxes? Salary exchange is the answer.

Using salary exchange, the employer pays the pension contribution direct to the pension company and, because it hasn’t hit the PAYE system, no NI is due. Easy as that.

Well, not quite. To make salary exchange effective, the employee’s work terms and conditions need to be changed. We can provide draft letters to make that happen and can do presentations to explain the benefits of salary exchange, giving employers and employees the opportunity to ask questions.

An example

Just in case you need any further reason to put salary exchange in place, let’s consider one employee on £30,000 a year making a 5% gross pension contribution. The employee will save £15 per month in NI which will be reflected as a straight increase in take home pay. And the employer will save £17.25 per month. That’s a joint annual saving of £390 in NI. Multiply that by the number of staff and…

Author: Richmond House