• Share
•  Delicious
•  Digg
•  Facebook
•  LinkedIn
•  Reddit
•  Twitter

Contact: Alistair Peck
Tel: +44 20 7178 3143

			E-mail this page				Print this page

UK
London, 3 March 2010

• Proposals fail to understand how pension schemes work and ignore the likely reactions of high earners and their employers
• Costs for industry could exceed revenue generated
  Reforming the Annual Allowance and tax free lump sum would be a simpler, lower cost and more positive way of meeting Government objectives

Mercer believes that the proposals to restrict higher rate tax relief are ‘a smash and grab’ raid on pension schemes, paying scant regard to the interests of ordinary scheme members or trustees’ responsibilities to ensure the security of those members’ benefits.

The comments come as Mercer issued its response to HMRC’s consultation on how it plans to restrict the tax relief available to high earners on pension saving. The consultancy believes that the proposals are extremely complex and that HMRC appears to have significantly underestimated the cost to employers and pension schemes of implementing its proposals.

Mercer is also concerned that HMRC has developed its proposals without any understanding of how pension schemes work in practice, or how high earners and their employers are likely to react to complex and extremely penal tax legislation.  According to the consultancy, HMRC has also ignored employers’ natural instinct to reward their high earners in the most tax-efficient way.

According to Deborah Cooper, Head of Mercer’s Retirement Resource Group, “If pension schemes are no longer perceived as tax efficient for high earners, the incentive to provide more general employer-sponsored pension savings will be reduced, and could lead to further cutbacks in what is available to employees.”

“We completely support the Government’s aim to provide a tax system that is fair, affordable and sustainable,” she continued, “but these proposals are contrary to all of those aims. Different people with similar rates of income will suffer significantly different tax rates, just because of the way their remuneration is structured. Some will incur marginal tax rates of over 100% because of the new thresholds being introduced, but might be unable to plan around this because eligibility for the new tax charges can only be assessed after the end of the tax year.”

Mercer also feels the impact assessment grossly underestimates the cost to employers and trustees.

“In some cases the cost estimated is around a 1/10th of what could actually be incurred,” said Dr Cooper. “If this is replicated across the impact assessment, the cost to employers and schemes will exceed the revenue the Government hopes to generate from its proposals, which seems wholly inappropriate.”

Mercer supports the NAPF’s proposal that the Government should consider using the Annual Allowance, which is already part of the pensions infrastructure, to meet its objectives. This would be simple to understand, impose little additional cost of schemes and avoid many of the consultation proposals’ negative features.

“We’d also understand if the Government decided to cap the tax-free lump sum,” added Dr Cooper. “The industry recognises that some of the pension tax simplification changes made by the Finance Act 2004 were quite generous to higher rate tax payers, and it could be appropriate to reinstate some of the limits to tax advantaged pension saving that the Government removed via its A Day reforms.”

E-mail this page

Print this page

Contact: Alistair Peck
Mercer Press Office
Tel: +44 20 7178 3143