Top firms are placing a cap on the pensions perks of their highest-earning employees as a response to complex rules governing contributions.
Research by pensions consultancy Hymans Robertson, which surveyed 30 of its blue chip clients, found that many are capping contributions at £10,000 a year due to the onerous task of calculating the varying allowances of different high-earning individuals.
Introduced by former chancellor George Osborne, the so-called “annual allowance taper” scales back the amount that those earning £150,000 and higher can put into a pension – and values can vary considerably depending on the individual circumstances of each employee.
Depending on the result of each calculation, the contribution required from the employer can vary from £10,000 to £40,000, so business leaders are understandably fearful of getting their figures wrong.
Chris Noon, a partner at Hymans Robertson, said that firms are instead topping up salaries, but that this comes with a tax sting in the tail to the employee:
“Our clients are some of the biggest blue chip firms in the country. By applying caps they are restricting the pension savings of hundreds or even thousands of people each.
“The result is higher earners are being paid more as their basic salary and paying extra income tax, whereas pensions benefit from tax relief.”
Noon added that the issue is set to become yet more complicated for employers in the years ahead, because of the right of employees to carry forward any unused pension allowances from the previous three tax years:
“At the moment one of my clients has 360 members of staff earning enough to be subject to the taper, yet only 22 of them had a tax bill in 2016/17,” he says.
“But going forward, 250 of them will be affected because their ‘carry forward’ will have run out.”