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Budget is death knell for final salary schemes, says Hargreaves

Hargreaves Lansdown says the Budget measure to restrict tax relief on pension contributions for higher earners is the death knell for final salary pensions.

Head of pensions research Tom McPhail says company directors will no longer be motivated to provide burdensome pension schemes to employees.

He says: “Just about the only reason that company directors have been willing to tolerate the continued burden on their business of funding a final salary scheme has been one of self-interest – they get to share in the benefits of the scheme. The government proposes to remove that motivation.

“Any employer running a final salary scheme is likely to give up at this point. Your senior execs have gone from enjoying a tax break on their own contributions, to a situation where they not only lose their own tax relief, they also have to pay tax on their employer’s contributions. Given that it is going to cost them an average of £10,600 a year, it is a fair bet that many of them will just shut their final salary scheme down and walk away.”

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