Pension reform – no balance when it comes to feast or famine

“Workers earning above £150k – those who in the government’s opinion could effectively ‘feast’ on tax-free pension benefits – have had them cut back to £10k, yet average earners, who are more likely to be in the ‘famine’ category and unable to reach their £40k tax-free threshold, have no restrictions imposed. This is not a balanced approach.

“The new cap means someone typically earning £200k is now limited to a five per cent salary pension contribution – effectively slashing a major business perk. Will this prompt top earners to pull out from their pension scheme, take a cash alternative or end up with nothing?

“And if employers are unable to reward their key decision makers, they may have little appetite to do the same for their workforce and strip back schemes to the bare minimum of auto-enrolment. Many employers will be horrified at my suggestion of such a scenario, but I’m only saying what others are thinking.

“The numerous changes to pension legislation have left pension provision neither simple nor transparent and, rather than creating a more level playing field, it is now even harder for employers and their staff to make long-term decisions. These obstacles can, however, be overcome once business leaders understand the budget issues and maximise the opportunities it creates, i.e. by building up pension contributions before the cap comes into force next April.

“I recommend firms develop a strategy to cope with next year’s reforms, but be mindful it will need to evolve in line with further consultation on ISA-style pensions. There is no logic to continual change and only when we have a period of pension stability will employers be able to offer solutions that are mid-way between feast and famine.”

Lemonade Reward has produced a Budget guide, detailing how the 20 key announcements could impact positively or negatively on financial plans. It’s available free – email or call 01483 617 019.