Employees could be missing out on enhancing the value of their pre-existing benefits such as company shares if they are not educated about the consequences of pensions simplification.
New annual contribution limits and the introduction of concurrency, which together allow people to contribute up to 100% of earnings across more than one pension, mean that both employees and employers need to rethink retirement, said David Cassidy, chief executive of JP Morgan Invest.
He gives the example of how an employee who has bought shares through a share incentive plan could enhance the value of the maturing investment by putting it in an employee-owned self-invested personal pension (SIPP) thus attracting pensions tax relief. The SIPP would run concurrently with the company pension scheme. "By linking the two, the return on [an] investment [of £1] can be as high as 246% for a higher rate tax payer."
He added: "Employees need to be educated about what is possible under pensions simplification in the round.
"Secondly, employers need to provide access to the platforms required to physically exploit these opportunities. While existing schemes could be used as the wrapper many employers may be reluctant to do this because of the scheme rules, administration and the cost involved. This can be overcome by allowing access to individual SIPPS, that don’t involve the employer at all but provide the employee with added value through "affinity pricing, " added Cassidy.