UK - Inland Revenue restrictions on employer contributions to plug fund deficits could push more companies to abandon their final salary schemes, Horwarth Clark Whitehill warns.
The accountancy firm said the Revenue rigidly spreads the tax relief for “special contributions” over four years, leaving sponsoring employers waiting on backdated tax relief claims.
Horwarth Clark Whitehill pensions group head Zahir Fazal said this is a further addition to the raft of anti-DB measures still in place.
He said: “This creates a substantial mismatch between the cash outlay and the timing of the tax relief, which is disadvantageous for the payer.”
For example, he said, a company making a special contribution of £10m would only get a tax benefit of £750,000 in the year in which the contribution is paid, with the remaining £2.25m of tax benefit spread over a further three years.
Fazal added: “In these difficult times, one would expect the Inland Revenue to exercise its powers more pragmatically and for policy-makers to be seeking to encourage, rather than discourage, the elimination of these massive and worrying deficits.”
Mercer Human Resource Consulting senior consultant Deborah Cooper agreed and urged the Revenue to use its discretion to reduce such tax obligations.
“It is in the Inland Revenue’s interest for people to put money into pension schemes at the moment so this would be rather like shooting yourself in the foot.”
The Next Generation Pensions Committee is on a mission to promote and encourage younger voices in the industry. Kim Kaveh looks at its key objectives
This week's top stories included an analysis finding the cost of equalising guaranteed minimum pensions in schemes could hit FTSE 100 profits by up to £15bn.
Employers whose dividend to deficit recovery contribution (DRCs) ratios fall outside the "normal range" should expect to see higher regulatory scrutiny, although no fixed ratio will be set.
Investment consultants and fiduciary managers should expect a final decision on the investigation into the market to be published by the end of the year, the competition watchdog says.