Retirement plans meet people’s needs (not what we want to sell them)


This is a blog about Gareth Morgan, Greggs and about how we meet the needs of all people in retirement, not just the sufficient

Here is Gareth’s blog – AgeWage will be integrating Gareth’s analytics into our work on retirement plans. If  you are a provider , consultant or reward strategist, we hope you do too!

Greggs £300 – Bonus or Booby Prize?

by  on January 11, 2020


Greggs, the well-known bakers, have been in the news this week because they are giving their staff a bonus because of good financial results. It’s always good seeing employers rewarding staff, and Greggs already have a generous profit-sharing scheme.


They’ve basically just handed £7m back to the govt.

I have two questions about this. The first, widely shared as can be seen from a number of comments to the tweet above, is ‘how much will people actually get in their pocket?‘.

This is the same question, in many ways, as my post a few days ago about the increase in the National Living Wage; . It’s the problem of what is called Marginal Deduction Rate, or perhaps more accurately, the effective marginal tax rate. That is the amount of money taken away from the extra earnings or bonus by such things as tax, National Insurance (NI), reduction in state benefits, reduction in local benefits, and the loss of other means-tested entitlements, such as free prescriptions because of low income.

This can be a very complex calculation. It also depends a great deal upon individual circumstances. There are some relatively straightforward parts of such a calculation; for example, a 20% deduction for income tax where somebody’s earnings are above the personal allowance level and a similar assessment for NI. It gets more complicated when looking at Universal Credit which depends not only upon what’s left after tax and NI but upon the personal details which are used to assess the benefit, where some people will have different amounts of earnings that are disregarded, so that the extra may have more, or less, effect. Some people may find that the extra leaves them with less benefit, while others may find that they lose their entitlement altogether, and might have done so with even a smaller increase. The causal chain continues with local benefits, such as Council Tax Reduction, dependent upon the Universal Credit result and low income or ‘passported‘ entitlements following on again.

Universal Credit, in particular, is affected by this kind of bonus payment, because it uses “when the payment is made” in its calculation and doesn’t spread the impact over a year. That magnifies the problem for many people.

Unlike my figures for the National Living Wage note, where I was looking at the government’s assumptions for people in full-time work, Greggs staff may have a wide range of hours of work and pay scales. Some of them may have earnings above the tax or NI thresholds, while others may not. Some may be claiming Universal Credit, while others may not, etc. etc. The value of the bonus to different people will be worth different amounts.

What I have tried to do, is to break down the effects of tax, NI and benefits in a way which might offer some illustrations of the results.

First, what happens to people whose existing overall earnings, averaged over a year, will be above or below the tax and NI thresholds. I’m using the 2019/2020 figures throughout.

Earnings below the tax and national insurance thresholds. Less than £165.55 a week, (£8,632 a year). Earnings between the tax and national insurance thresholds. More than £165.55 a week, (£8,632 a year) but less than £239.07 a week (£12,500 a year) Earnings above both thresholds. More than £239.07 a week (£12,500 a year)
No deduction NI deducted at 12% NI deducted at 12% and tax deducted at 20%.
Bonus £300 £300 £300
After deduction £300 £264 £204

I am, of course, ignoring the more complicated, but very real, cases where the bonus takes people’s earnings above threshold values, so there is a part deduction, and where people are taxed at different rates for various reasons. I’m also not taking any account of pension contributions here.

If people are not receiving, or entitled to, any benefits then that will be the end result for those people. That often applies to people with higher earnings, or partners with higher earnings. Many Greggs staff, as pointed out in the tweet above, will be claiming benefits and increasingly that benefit will be Universal Credit. That introduces another stage and another serious problem.

As pointed out earlier, Universal Credit, unlike the legacy Working Tax Credit it’s replacing, looks at earnings, including bonuses, when they are paid and not averaged over a year. That means that the bonus paid this month reduces the Universal Credit paid next month.

Universal Credit, unlike other legacy benefits such as Job Seekers Allowance, does allow people to keep some of the extra earnings, including bonuses, that they get. It lets them keep 37% of the extra. The government claws back the other 63%. That gives the following result.

Earnings below the tax and national insurance thresholds. Earnings between the tax and national insurance thresholds. Earnings above both thresholds.
Bonus £300 £300 £300
After deduction £300 £264 £204
Universal Credit Reduction £189 £166.32 £128.52
Worker £111 £97.68 £75,48

The reduction figures apply to those people who don’t have any disregarded earnings for Universal Credit, called Work Allowances, or whose earnings are already higher than those allowances. If people’s earnings are below those work allowance figures, and they have children or disabilities, then some of the net bonus will also be disregarded.

It’s striking though that roughly two-thirds to three-quarters of the bonus, for those people on income support, is being taken by the government.

Whatever the amounts that are taken into account, they will affect the Universal Credit the following month. They will be added to the existing earnings to recalculate entitlement. Universal Credit already has problems with the way it assesses monthly earnings figures. People paid weekly, as is common with low paid or part-time employment, will find that sometimes five paydays taken into account and sometimes four, with very serious effects ( see ).

Universal Credit is not a high-paying benefit; benefit caps, rent caps, limits on the number of children supported, sanctions as well as the freeze on the level of benefits for the last four years have driven down the real level of support. That means that often it does not take a big increase in earnings to stop entitlement altogether.

If that happens then people must claim the benefit again in the following month, using a shortened process. If they don’t, or aren’t able to for some reason, then their benefit won’t restart.

If they’re also claiming Council Tax Reduction then that will be reduced as well and, because for most local authorities it’s linked to Universal Credit, if Universal Credit stops then Council Tax Reduction can be thrown into confusion. It’s not possible to illustrate the effects of the bonus as there are different rules across the country.

Greggs generosity to their employees might seem, in practice, to be generosity to the government. Not only is the bulk of this bonus money likely to end up in the pockets of central or local government but Greggs will be paying an additional 13.8%, or £41.40 by way of extra Employers National Insurance contributions, although there will be a corporation tax offset to take into account.

So, to my second question, is there a better way to reward employees?

While a bonus is probably administratively simpler, because it doesn’t require much individual consideration, there are other alternatives that might be more welcome, once the real value of the bonus is taken into account. Additional holiday entitlement or pension contributions spring to mind. A bonus sacrifice into their workplace pension would save most National Insurance, for example. Pension contributions are disregarded completely from Universal Credit.ferret 2

While the bonus clearly isn’t a booby prize, it’s still depressing that a government which talks non-stop about work incentives and encouraging people to work longer and earn more, still insists on grabbing as much as they can of any increase that people get.

Retirement plans should focus on what people need…

My retirement plan is to stay healthy, wealthy and wise. It involves me finding the right balance of work, play and support from my financial investments. If I was not as lucky as I am, it might include further support from the state. Pensions play a part, my property might play a part and my businesses may still be supporting me into my later years.

To stay healthy I am changing my nutrition, cutting down on alcohol and participating in a range of fitness activities including travelling around London on Santander Bikes.

As we revise the AgeWage business plan for the next five years, I am coming under pressure to focus on the “monetisables”.  I am clear that there are a number of financial products that lie at the end of user journeys which could make us profitable immediately. All we need to do is to drive out profit and AgeWage could become a leading lead-generator for the financial services industry. 

It’s not going to happen! We are in the business of helping people turn pension pots into retirement plans and that means offering services to people that reward them rather than us.

Yesterday I visited my old friend Ben Jupp, with whom I and Steve Bee worked in the mid nineties. 25 years later Ben is a Director of Social Finance, an organistion that spends money on integrating not for profit services like the NHS into the retirement plans of the UK population. I will be writing a lot more about this because occupational health should be about the NHS as well as BUPA and Axa PPP.

I also read a fine piece of writing by my friend Gareth (the Ferret) Morgan, probably Britain’s greatest expert on how the package of benefits collectively known as Universal Credit (UC) integrate with our private finances. While I have a lot of respect for organisations such as AgeUK, who provide help from charitable status, I find in Gareth’s entrepreneurial zeal , a spirit that chimes with what I am doing at AgeWage.

It is right that Gareth’s Ferret Systems gets the commercial reward it deserves and the reason for including this blog of Gareth’s on mine, is to encourage readers who take decisions on reward , to think of how the reward they offer plays out, not just to executives but to those in the workforce on low pay.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Retirement plans meet people’s needs (not what we want to sell them)

  1. John Mather says:

    When I started my career in financial services we had one yellow Butterworths and one orange. Today we must have a yard of shelf space and on line manuals from HMRC to navigate the system. More legislation is added every day often with unintended consequences eg Doctors and taper relief or 3% extra stamp duty when moving your primary home for those with a holiday home in Spain. Air passenger duty of £26 from Bristol to Birmingham, the same as Ryan Air london to Prague

  2. Blush, thanks Henry. The postal order is on its way.

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