Trustees and sponsoring employers could face unpredictable tax charges and complex issues arising from ‘scheme pays' legislation, JLT Benefit Solutions warns.
The consultant said new pension tax rules, effective from April this year, which reduced the annual allowance to £50,000 and the lifetime allowance to £155,000, will result in potential tax charges for some employees that schemes will ultimately have to pay.
In March, the Treasury announced scheme pays must be made available for members who incur AA charges above £2,000, which will enable them to choose to pay the full cost from their pension benefit, and the tax must be paid at the point the charge arises (PP Online, 3 March).
However, JLT warned much of the burden of the new tax arrangements will be transferred from the individual to the scheme trustees, meaning the administration cost will ultimately fall on the employer.
It also said the costs involved in meeting a scheme member's tax charge, will result in rewarding an employee with a benefit that will, effectively be taxed twice, which needs to be considered.
JLT senior consultant and business development manager Graham Cooke said: "Given that the new annual allowance amounts to £50, 000, a 50% tax payer would only need an annual input of £54,000 to face a charge of £2,000, so most of those who exceed the limit will be able to request that their scheme pays.
"By re-structuring benefits it should be possible to avoid a tax charge and the association costs altogether; but if benefit re-structuring is to take place, action should be taken now."
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