This Thursday (6 April) is Pensions A-day – the launch of a new simplified pensions tax system to replace the eight previous tax regimes. But if your company has left preparations until the last minute, you are not alone and it is not too late.
A large proportion of the UK’s HR practitioners are “late to the party” on Pensions A-day, with well over 25% of organisations having yet to complete their response, according to Jon Terry, partner at PricewaterhouseCoopers.
For those who have yet to make a start, Terry identifies four priority areas on which HR and pensions professionals should concentrate: administration, documentation, policy decisions, and communication.
Pensions benefits for high-earning staff is one area that is proving complicated.
The new tax regime introduces a single lifetime allowance (LTA), limiting the value of benefits that can be accrued in pensions schemes to £1.5m per person.
So HR must make it a priority to formulate policies for individuals whose benefits exceed the LTA.
But as Terry points out, affected high-earners are likely to “give HR practitioners a lot of hassle, and so they will receive a lot more attention”.
Changes affecting the remainder of staff can be viewed as ‘second order’ in terms of immediate impact, but still require attention.
Orlando Harvey Wood, partner at Deloitte, said many employers had decided to offer cash alternatives to high-earners. “But many have not decided what to do with these cash alternatives,” he warned.
Communication is also a key issue. Terry said that all related communications with staff should be written in plain English, spelling out clearly the various options and explaining how these changes will offer greater pensions flexibility.
- A-day advice, www.a-dayadvice.co.uk
- The Registered Pension Schemes (Authorised Surplus Payments) Regulations 2006, www.hmrc.gov.uk/si/b19.pdf, HM Revenue and Customs (HMRC)
- Pensions Tax Simplification, www.hmrc.gov.uk/pensionschemes/pts.htm, HMRC
- Pensions Tax Simplification FAQ, www.hmrc.gov.uk/pensionschemes/faqs.htm, HMRC
- ‘Pensions made clear’ (special resources for HR professionals), www.fsa.gov.uk/consumer/pensions/hr/hr.html, Financial Services Authority
What pensions A-day means for HR
- Employers and trustees must review pensions scheme benefits and set up the correct administration systems.
- Consider the position of high-earners whose pensions may be affected by the new lifetime allowance.
- Review benefits such as the tax-free retirement lump sum and death-in-service lump sums.
- Meet the Inland Revenue’s new reporting and filing requirements.
- Use independent financial advice or pension modelling software to help higher-paid employees ascertain their pension position.
Source: IRS Occupational Pensions