Nearly two thirds (64%) of finance directors, trustees and pensions managers believe a reduced annual allowance is an improvement over previous proposals for a ‘high income excess relief charge’ targeted at those with annual incomes over £130,000.
According to research by Punter Southall, the principal reason cited in favour of the change was the belief that basing the tax charge on a reduced annual allowance would be much simpler to communicate and administer, with all members being treated in the same way and less complexity in the calculations.
During the survey, which was conducted in July and August 2010, more than 130 respondents were asked how they felt about the changes and the impact they would have on their pension schemes and remuneration strategies.
The most common option to be considered among respondents for remuneration packages is the provision of additional salary as an alternative to pension contributions.
Other findings include:
- 80% of respondents expect the changes will result in an increased number of enquiries and requests for calculations for members, with nearly half of these believing the increase will be significant.
- 70% of respondents believe it would be desirable for the annual allowance test to be redesigned so that increases to accrued benefits in line with price inflation are excluded from the definition of future accrual, but opinion is divided over other features of the design.
- 65% of respondents envisage problems if they need to carry out ‘scheme pays’ calculations to pay the tax on members’ behalf and reduce their benefits accordingly.
- 70% of respondents have taken steps to identify which of their pension scheme members may be affected by the changes, although over half will need to repeat the exercise as they based the analysis on the previous proposals.
- A third of respondents have communicated with individuals about the changes and a further 54% intend to in the future, with only 9% having no plans to do so.
- Three-quarters of respondents expect the changes to reduce the overall level of provision for individuals.
Jane Beverley, principal and head of research at Punter Southall, said: “The greatest challenge in implementing a reduced annual allowance approach will be retaining the simplicity that has made it a popular replacement for the high income excess relief charge, while at the same time correcting some existing anomalies and potential areas for avoidance, which will become more significant if the level of the annual allowance is reduced.
“We hope to find HM Treasury has risen to that challenge when it makes its expected announcement on the intended approach. With time running out before next April, individuals may already be taking decisions that will affect their liability to tax in respect of the 2011/12 tax year and there is now an urgent need for both employers and individuals to take advice where they have not already done so.”
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