The next time you look at your council tax bill, think about this! Thanks to my friend Shaun Tetley for this article which first appeared in the Management Journal.

Portsmouth City Council Save Over £1.3million with Cost-Effective Employee Savings Scheme

Employers in the public sector are facing a growing challenge to protect staff against inflationary pressures. Everyday life has become considerably more expensive, and our employees are having to make sacrifices that directly impact their financial and overall wellbeing. Pay settlements are failing to match inflation in real terms, so it is becoming increasingly difficult for employers to recruit and retain staff.

To add further difficulty, employers are facing budget overspends and struggle to offer salaries that compete with the rate of inflation.

In my role as Chair of the Public Sector Chartered Institute of Payroll Professionals, I work closely with other Councils and I am regularly asked the question ‘How can employers prioritise budget deficits whilst protecting their employees’ futures?’,

To ease the pressure, employers are looking at additional schemes and initiatives to support their employees’ future financial security. Implementing the right benefits package means employers are helping their workforces protect their savings at a time when it’s most important.

Notably, retirement planning is less of a priority for many employees because of today’s inflationary challenges, leaving their future financial security increasingly at threat. Employers should focus on giving employees access to additional cost-efficient savings opportunities and effective retirement education, so that they have the power and knowledge to make their money go further in real terms.

For example, employers in local government and beyond can enable their employees to boost their pension value via Additional Voluntary Contributions (AVCs), which allow employees to contribute tax-free towards their pension pot and save with an AVC provider appointed by the pension fund.

What’s less known is that employers who have members of the Local Government Pension Scheme (LGPS) can allow the AVCs to be paid through a salary sacrifice arrangement. This is known as a salary sacrifice Shared Cost Additional Voluntary Contribution (Shared Cost AVC).

Shared Cost AVCs are more beneficial than a standard AVC because an employee’s salary is sacrificed into the scheme pre-tax, meaning contributions are exempt from National Insurance Contributions as well as Income Tax. This can result in employer savings equal to 14.3%* of the total salary sacrifice amount for your organisation, with every employee contribution. Plus there is an attractive bonus, most staff can take their pot 100% tax-free. There are HMRC tax free limits but not many staff exceed the limit.

Initiatives like Shared Cost AVCs are helping employers to make substantial organisational savings but crucially, demonstrate that they are prioritising the financial and overall wellbeing of their employees.

Building attractive benefits packages; most importantly giving employees the choice to save for the future through valuable, tax-efficient schemes, helps recruitment and retention issues as well as enhancing reward and recognition at a time when it’s much needed.

Many local authorities, Fire & Rescue services, Police Forces and Universities are already taking advantage of cost-effective salary sacrifice schemes, but there’s still a long way to go in raising awareness of Shared Cost AVCs across the sector. All LGPS members are entitled to and should have access to this benefit.

As chair of the public sector CIPP, I meet employers from all areas of the public sector and help many  with advice and support when on implementing salary sacrifice schemes. There is a clear need for cost-saving schemes right now, but to have an option that ticks multiple boxes (savings, staff financial wellbeing support, retirement education) makes Shared Cost AVCs unique.

The employer savings are particularly impressive. In 2018 as Head of Pensions at Portsmouth City Council,  I launched a Shared Cost AVC scheme. As of May 2023, the Council has saved over £1.3m, which has been incredibly helpful towards alleviating our budget pressures and delivering a popular staff financial well-being benefit.

With jobs on the line, budgets under scrutiny and cost pressures mounting for employers, it’s more important than ever to be looking for effective ways to directly save money for our Councils.

Procurement has also been simplified in that Portsmouth City Council have recently awarded, to a single provider, the only national salary sacrifice framework in the UK to allow councils to compliantly procure AVC services. This will help to speed up the introduction of this financial well-being benefit which in turn will result in the earlier delivery of council savings but equally important the provision of one of the most popular employee benefits available to LGPS members. This can be used either by councils who are seeking to procure for the first time or for the replacement of existing contracts.

Salary sacrifice Shared Cost AVCs enhance employee’s retirement dreams because the growth rates are stunning. For every £1 saved basic rate taxpayers achieve savings growth of nearly 47% and higher rate taxpayers over 72%. In addition, the recent budget changes to the pension lifetime and annual allowance have made it even more attractive to join the LGPS AVC saving club!

You can save from as little as £2 each month and we know that with the cost of living crisis the scheme may not suit all staff but with high street interest rates being well below inflation, it provides an attractive savings option.

In summary, LGPS Shared Cost AVCs provide a significant saving opportunity for both employee’s and employer’s and if your employer does not currently provide a scheme, you should be asking why not.

For more information, contact  the author;  shaun.tetley@portsmouthcc.gov.uk.