Key Employee Benefits Legislation: Insights & Tips
The landscape of employee benefits legislation affecting HR leaders is constantly evolving. Here are three key updates that we at Mercer Marsh Benefits (MMB) have been discussing with our clients recently.
1. National Insurance
As of April 6, 2025, the following changes came into effect:
- National Insurance contributions (NICs) have risen from 13.8% to 15%.
- Additionally, the threshold for employer NIC payments has decreased from £9,100 to £5,000.1
As employers look for ways to manage higher costs, they are focusing on their largest expense: salaries. However, in a tight talent market where many employees are worried about the cost of living, reducing wages may not be practical. Furthermore, the tax implications of higher salaries could complicate their decisions.
The increase has led many employers to consider salary sacrifice (or salary exchange) for pension contributions to help reduce this extra cost. For companies contributing the minimum 3% to pensions (with employees contributing 5%) adopting salary sacrifice may be beneficial. This approach could result in savings of approximately 0.75% of total payroll costs.2
Top tips:
- At MMB, we believe that salary sacrifice is underutilised due to a historical lack of awareness.
- To maximise participation, make it easy for employees to opt into schemes throughout the year.
- Review eligibility requirements in light of the minimum wage increases that took effect in April 2025.3
2. Inheritance Tax (IHT)
The Autumn Budget 2024 announced that as of April 2027, most unused pension funds and death benefits will be included in an individual’s estate for IHT purposes. This change is expected to lead to more employees seeking financial advice.
Employers may respond by providing financial education and access to advice for employees. While many details remain unclear, the Government's intention is evident. Employees should ensure they have an up-to-date nomination of beneficiaries.
We are closely watching the HMRC consultation on the IHT changes announced in the Autumn Budget. We have submitted questions to clarify the proposals. There are differing views on whether lump sum death benefits from registered group life schemes will be included in the new calculations.
Top tips:
- Organisations should seek expert tax guidance. They should hold off on restructuring existing arrangements until more information is available.
- This is especially crucial as it relates to the employment status of employees and its potential impact on paying tax.
3. Pensions
Although legislation has not been introduced yet, the Government is consulting on major changes to the DC pensions market. The main aim is to shift the focus from cost to value for money when evaluating default arrangements in workplace pension schemes.
A value-for-money framework is being developed, which will include clear reporting metrics to assign pension schemes a red, amber, or green rating. These ratings will be publicly disclosed. However, the timescales for implementation have not yet been specified.
The Government is looking into how employers and their advisers manage costs. Proposed policies suggest changing auto-enrolment laws so that employers must evaluate the value of pension schemes when selecting them. There is also a plan to appoint a board-level executive to ensure that employees receive good value in their retirement outcomes.
Top tips:
- Given the Government's direction, organisations should actively assess the value that their current workplace pension schemes offer to members.
- This assessment should include a detailed review of how benefits like holiday pay, parental leave, paid leave, and company cars fit into the overall compensation package.
- This will help ensure that employees receive a competitive and valuable benefits offering.
- Organisations should also assess how changes in legislation may affect the employment relationship with their employees. This includes considerations for agency workers. Especially in the context of business transfers and the continuity of benefits.
