The idea of offering the same group Sipp to all staff chimes well with the new mood of austerity being forced on the nation’s companies. Of course there will be some bosses who think twice about implementing a plan from which they themselves are unlikely to benefit, particularly in the SME sector.
Corporate pensions advisers say implementation of some group Sipps has been on hold since the Budget, but in light of the bomb Alistair Darling dropped on the industry, what financial planning arrangements haven’t been?
Once the dust has settled and people have got used to the new world, I expect a continuation of the long-term trend towards group Sipps, together with other financial products such as Isas and property deposit savings accounts held within the corporate wrapper.
If anything, group Sipps could benefit from the Budget as finance directors despair of the latest layer of cost, complication and time they are having to divert towards final salary or occupational DC arrangements. Furthermore, group Sipps allow employers to meet their ethical and religious obligations by giving automatic access to green, SRI and Sharia funds.
That said, the Budget has practically excluded highly paid directors from enjoying the flexibility available through group Sipps. It is hard to see the attraction of paying taxed earnings into a product on which you will be taxed again. Many 50 per cent taxpayers will likely pay higher-rate tax in retirement, and you would need to be confident of spectacular growth on contributions into a corporate Sipp for the exemption from capital gains and income tax to make it worth your while.
Share rollover has been one of the key drivers of the group Sipp expansion, and the attractive tax efficiencies available for the majority whose income is over £150,000 means this will continue. Employers like the tie-in they get with staff who keep their company shares after maturity in their pension fund.
One strategy that has appealed to some directors has been the use of corporate Sipps to turn company shares that cannot be sold for a long time into cash.
This can be demonstrated by the example of a director paying tax at 40 per cent who has £50,000 of shares that must be held for a further 10 years. He makes an in specie transfer of £40,000 worth of the shares into the Sipp. He receives £10,000 tax relief when he files his tax return and his Sipp receives a further £10,000 cash in respect of his basic-rate tax relief. He then exchanges the remaining £10,000 worth of shares into the Sipp in exchange for the £10,000, giving him £20,000 or 40 per cent of the value of his shares in his hand today.
This will no longer work for those with earnings over £150,000, who have had most to gain from it until now.
But for the millions of Save As You Earn and Share Incentive Plan holders with income below this threshold, rollover will remain an attractive option, particularly if employers are able to present them with a seamless way to do it when their plans mature.
Whether holding too many of their pension eggs in one basket is a good thing or not is a different matter.
John Greenwood is editor of Corporate AdviserMoney Marketing