View more on these topics

‘Safe limits and cash in lieu’: How firms are dealing with pensions tax taper


Employers are changing the way they pay pension benefits to higher earners in light of the tapered annual allowance introduced a year ago.

Since last year, individuals have subject to a reduced annual allowance where they earn over £150,000. For those earning over £210,000 the annual allowance will drop from £40,000 to £10,000.

The Financial Times reports employers are taking different approaches towards advising employees of the taper, with some providing bespoke solutions and some avoiding a conversation altogether.

Some firms are choosing a “safety first” approach which imposes a blanket £10,000 cap on workplace pension contributions.

Hymans Robertson partner Chris Noon told the newspaper: “Fearful of misunderstanding the taper, exceeding their annual limits and facing tax charges as a penalty, many simply choose to cap their pension contributions at £10,000, rather than calculating whether this is necessary.

“Evidence from our clients has shown that a third of company schemes are implementing a cap at £10,000 and many more are considering it.”

Cash in lieu of pension contributions are also becoming prevalent.

Handelsbanken Wealth Management head of advice Christine Ross says: “We have seen an employer establish a special defined contribution section for total annual employer contributions of up to £10,000, with any balance being paid to the employee as a cash allowance.

“Some employers have offered a lower percentage of salary to allow for the higher employer national insurance cost. For example, in the case of one employer, they will contribute 15 per cent [of salary] into the company defined contribution pension scheme, but 13 per cent as a cash alternative, paid through PAYE.”


Loney-Phil-Royal London-2013

Royal London boss calls on Govt to scrap ‘hopeless’ tax taper

Royal London group chief executive Phil Loney is pushing for the Government to scrap the tapered annual allowance for higher earners, branding it “hopeless” and overly complex. Since 6 April, individuals with “adjusted income” over £150,000 will see their annual allowance reduced from £40,000 down to £10,000 for those earning over £210,000. Adjusted income is […]


Govt urged to allow adviser charging for Lifetime Isas

Advisers think the regulations around Lifetime Isas need to be relaxed to allow for adviser charging for the product to be a success, research suggests. An AJ Bell adviser survey January found that many respondents thought that less than 10 per cent of their clients would find a Lifetime Isa attractive. But in a follow-up […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment