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Ambiguity surrounding tax relief on high earners' pension contributions will paralyse corporate schemes


Budget measures to levy additional tax on high earners' pension contributions will be detrimental to employers offering corporate pension schemes, industry experts agree.

In the Budget last month chancellor of the exchequer Alistair Darling announced those who earn more than £150,000 per year (1% of the working population) would have the higher tax relief on their pensions cut, to be aligned with lower earning pension savers from April 2011.

But in a survey of HR directors and pension managers by Hewitt Associates, 80% said the change would make it hard to make decisions about their pension scheme and 60% claimed the plans they had already made would have to be adapted to accommodate Darling's proposal.

Kevin Wesbroom, principal consultant at Hewitt Associates, said: "These latest changes are a major roadblock for companies and pension schemes. In an environment where companies need to be proactively planning their way out of the recession, the ambiguity of the changes laid out in the Budget is forcing schemes into a state of paralysis for another couple of years. They are not able to make any serious progress in addressing executive pensions, or take on any serious modelling or alternative planning."

And John Richardson, head of technical planning at corporate wealth advisers Towry Law, added: "These new rules are complex and there is a real danger directors and key employees of SMEs may not understand them. Anyone with annual income over £100,000 should take pension advice as a matter of priority. For example, some of these people may be able to benefit from effective tax relief of 60% when making a pension contribution.
 "While the Government has said that 2011 is when pension tax relief could be restricted, it has also introduced new rules that are designed to prevent effective tax planning ahead of this start date. So the wrong decisions made now will have an adverse effect on retirement planning.
"In many cases it is not clear whether people are affected by the new rules. So, as a first step, directors and key employees need to find out whether the new rules apply to them and if existing pension arrangements are protected."