View more on these topics

Relief squeeze hits wide range of staff

The Government’s proposals to restrict tax relief on pensions are inflexible and will hit ordinary workers not just high-earners, warns Mercer.

Under its consultation, the Treasury has called for suggestions on how to limit tax avoidance, particularly with regard to bigger than expected salary increases and enhanced benefits on redundancy and early retirement.

Mercer says it supports the Treasury’s rationale but believes the current proposals could restrict the development of flexible working practices and have severe financial implications for a wide range of employees, not just those targeted by the tax.

Redundant employees are often compensated with a combination of increased cash and pension benefits but Mercer says the Treasury’s proposals would prompt a “double tax hit” on both benefits.

Retirement research group head Deborah Cooper says: “Government proposals mean the taxation of these enhancements will make it financially unviable for an employee to receive benefits at a time when they need them most.”

She says the potential tax should be waived if redundancy terms apply to a certain number or category of employees.

Mercer says employers with an established and pre-funded practice of allowing staff to retire early or for reasons of ill-health should also be exempt from additional tax. It says the factor that is used to test against the annual allowance should take the scheme’s normal practice into account.

Cooper adds: “Where early retirement is a more discretionary option we agree the employees benefiting from this enhancement should, where necessary, pay the appropriate tax charge.”

The firm believes the scope for abuse due to substantial salary rises is the least problematic area of the three, provided the factor used to evaluate DB accrual is designed appropriately.

Recommended

Adviser Fund Index

Retail fund of fund sales hit a record high in the second quarter of 2010. Investment Management Association data shows that multi-manager products achieved net inflows of £2.3bn between April and June, and accounted for almost £1 in every £10 of gross fund sales. The spurt boosted fund of fund assets to £46bn – 40 […]

3

Misplaced trust in banks

I heard a tale the other day of a 70-year old pensioner who recently popped into his local Barclays to complain about the poor service he had been getting (a cheque had been mislaid) but, more important, to moan about the paltry 0.1 per cent he was getting on several years’ worth of cash Isas. […]

1

HSBC threatens to move headquarters away from the UK

HSBC has warned that it may move its headquarters away from London if the UK government does decide to break up the big banks. The head of the group’s investment banking division Stuart Gulliver said at a banking conference that he was “genuinely concerned” that the UK’s banking commission would recommend a splitting of the […]

lakey.gif
1

The reality of bias

While reflecting on regulation and the retail distribution review recently, I pondered on the original ambitions of the RDR architects and how this interminable roadshow is addressing them. DP07/01 dreamed of “a retail market where consumers are capable and confident, information for consumers is clear, simple and understandable, firms are soundly managed, adequately capitalised and […]

Testing the Foundation

The global economy isn’t headed into recession, at least not yet. This month, David Lafferty, Chief Market Strategist at Natixis Global Asset Management, examines current capital market and portfolio risks for signs of recession. Click Here for Capital Market Notes

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment