FEATURE: PENSIONS & EMPLOYEE BENEFITS


Is it closing time for pension tax?


By MARK BEDDOWES, principal of Mark Beddowes Wealth Management and associate partner practice of St James’s Place Wealth Management


people can pay into their pension tax-free each year. Furthermore, three in ten companies that still offer final salary schemes are considering closing future accrual for scheme members. From April 2016, the government will restrict the annual tax-free amount


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that higher earners can pay into their pension. The current £40,000 annual contributions limit will be reduced by £1 for every £2 of ‘adjusted income’ over £150,000. For those earning over £210,000, the annual contributions limit will not fall below £10,000. Adjusted income includes an employee’s salary, the value of their


employer’s pension contributions, and other non-employer-related income. It is certain, therefore, that the changes will affect some individuals on lower salaries. Calculations by PwC suggest that anyone earning over £90,000 a year could potentially be affected. Pension savings are also subject to a lifetime allowance, which places an


overall limit on pension wealth. This will be cut from £1.25 million to £1m in April. PwC’s survey of 130 companies shows that the changes are proving so


problematic that over a quarter of those the firms surveyed are reviewing the role of pensions for all their employees.


Just rewards Many companies that offer defined contribution pension schemes are


currently considering their options, while the changes are acting as a further catalyst for the closure of final salary schemes. The reduced annual allowance means companies are going back to the drawing board and looking at how they reward higher earners.


38 CHAMBERLINK MARCH 2016


uts to pension tax allowances are forcing employers to rethink benefit packages. A third of companies are overhauling how they reward higher earners, due to new restrictions on the amount


Many companies are now offering to remunerate staff in a different way by


providing cash allowances in lieu of employer contributions. Half of companies are in discussions to offer cash as an alternative to their


affected employees, while 42% are considering restricting contributions to prevent their employees breaching the annual allowance threshold. Some companies are also considering introducing alternative saving


vehicles, such as corporate ISAs or flexible accrual, in order to prevent employees breaching the lower annual allowance.


Heavy duty The changes to the pension allowances come at the same time as auto-


enrolment places extra duties on business owners to enrol their eligible staff into a suitable workplace pension. In many cases, company directors have to advocate pension saving


through auto-enrolment, while at the same time change how they and their high earning staff save for retirement. If you’re not sure about your own situation, or how to protect senior


employees from paying unnecessary high tax, then please take some specialist advice.


For more information contact mark.beddowes@sjpp.co.uk The Partner Practice represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of which are set out on the Group's website www.sjp.co.uk/products. The 'St. James's Place Partnership' and the titles 'Partner' and 'Partner Practice' are marketing terms used to describe St. James's Place representatives.


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