Insurance brokers locking in staff with bonus delays

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Goldman Sachs may have backed down, but insurance brokers in the UK are pushing back bonus payments for high-earning staff in a bid to avoid the top rate of income tax. Brokers are not particularly pleased about this, however.

Around 250 staff at Aon signed up to its offer of postponing their bonus payments until after 6 April, when the top rate of tax for people earning more than £150k falls from 50% to 45%. It’s not alone; rival insurance broker Willis said that it is “reviewing” whether to allow highly-paid UK staff to delay bonus to April.

What’s more an increasing number of small insurance brokers, both in the Lloyds and London market, are delaying bonuses for their staff until April. On the face of it, this is for altruistic reasons to allow them to avoid the top-rate of income tax, but brokers are complaining that it’s another mechanism to lock them into their current roles.

“Smaller brokers are delaying bonus payments for all staff, whether they’re getting a £25k or £150k bonus this year,” says David Coupe, owner of insurance-focused lawyers EC3 Legal. “Brokers are not happy about this and coming to me asking whether there’s anything they can do about this. Because bonuses are discretionary, insurance firms can pay them when they like.”

If bonuses are paid in January or February it kick-starts what Coupe calls “Spring fever” – namely, vast amounts of movement in the job market as brokers look to move on to another venture. Very often, whole teams gravitate across to a rival - taking their clients with them - and firms losing the talent try various tactics, such as ‘divide and conquer’, to retain key individuals.

The latest move is seen as another retention method. “The majority of senior brokers have six-month notice periods, so if bonuses are paid in April they’re tied in until October, which is their busiest renewal period. There’s no way they could bring clients across with them at this point in the year, so most people will likely stay put,” says Coupe.

Nonetheless, you should expect to see more insurance brokers delaying bonuses  to avoid the higher income tax rate.

“Very few large financial services organisations are planning income tax optimisation, because of the reputational issues it brings – as the Goldman Sachs case indicates,” says Jon Terry, partner in the reward and compensation practice of PwC. “Smaller organisations, such as insurance brokers – particularly in the Lloyd’s market – are able to delay bonuses under the radar.”

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