Budget Impact on Pensions (May 2009) |
Employee Benefits -> EB Article Library
In his Budget speech, Chancellor Alistair Darling announced that pension tax relief for those earning more than £150,000 a year will gradually be tapered down so that it is 20% once earnings reach £180,000 a year; this is to be introduced from April 2011.
The changes may have a wider impact on corporate pension strategies. With senior management and executives seeing a reduced incentive, there may well be less focus and importance placed on pension arrangements within organisations. As a result, the very individuals that should, it could be said, be putting more into their pensions will be less inclined to. Clearly, education and qualified advice will continue to play an important role in ensuring that staff take full advantage of the tax breaks that remain and that when employees retire, “the money doesn’t run out before they do!”
Restructuring reward
The changes present employers with an ideal opportunity to review their reward packages and offering flexibility will help to meet the requirements for differing income groups. In our view, progression from a ‘one size fits all’ solution will also help to enhance an individual’s perception of the value of their ‘total reward’.
Salary sacrifice
It is highly likely that ‘salary sacrifice’ will become more popular for higher rate tax payers and employers looking to make savings on tax and national insurance contributions. The tapering down of the Personal Allowance in 2010 by £1 for every £2 earned above £100000, will make salary sacrifice particularly attractive to those affected in this way, although for those earning in excess of £150000 a year this will not be an effective solution. Implementing salary sacrifice needs to be carefully thought through, as not all of the outcomes may be positive. Correctly documenting and communicating the changes to the way that pensions are provided is vital.
Cartlidge Morland have previous experience working with a wide range of organisations to implement and manage salary sacrifice. It is an area in which we can provide pertinent and informed advice which can aid your employee benefits strategy.
Top-ups
High level earners who may have intended to top-up their pension pots with lump-sum payments will now gain less benefit from tax relief. The changes deter anyone earning more than £150,000 a year in the current or either of the two previous tax years, from changing their normal pattern of contributions between now and April 2011, where this would result in a contribution (including the employers) in excess of £20,000 a year.
Added complexity – take advice
Despite the raft of changes introduced in April 2006 to simplify pensions, it is clear that the 2009 Budget has already begun to reverse that trend. Obtaining good quality, regulated, independent pension and employee benefits advice will be important in negotiating the pensions minefield and delivering cost effective and employee valued solutions.
Call Cartlidge Morland to find out how we can help you understand the impact of the budget changes on your pension schemes.
Cartlidge Morland is an independent employee benefits consultancy. We provide benefit services to a wide range of partnerships, family companies, PLCs, charities and governmental organisations. We also provide financial advice to private clients, investment management and mortgage broking services.
Phone us on 020 7709 5560 or complete the online contact form
