Many companies are unprepared for the A-day changes which will affect high-earning executives, claims a new survey by Deloitte.
The figures show that just 12% of firms questioned have finalised alternative arrangements for executives adversely impacted by the A-day changes, where their retirement benefits are going to exceed either the new Lifetime Allowance (LTA) of £1.5m, or the new Annual Allowance of £215,000. Additional tax charges will then be levied on any benefits which exceed these limits.
For smaller employers, lower salary levels mean that in some cases this is likely to be less of an issue, but the survey claims 76% of respondents indicated they employed people who were likely to be adversely affected by pensions simplification.
As the A-day changes do not restrict the amount of benefit that can be paid, it merely taxes the excess, one option available to employers, claims the report, is to do nothing and allow executives to fund for retirement benefits without reference to the LTA or Annual Allowance, leaving the executive to pay any additional tax charges as and when they arise. But the figures from the survey show 91% of companies are planning to implement a policy to provide alternative benefits to avoid these extra tax charges.
Cash compensation seems to be the most popular alternative benefit and according to the survey is likely to be used by 73% of respondents. Unfunded Unapproved Retirement Benefit Schemes (Uurbs) and Funded Unapproved Retirement Benefit Schemes (Furbs) are also a relatively popular choice with 27% of companies planning to adopt Uurbs, while 10% are planning to go with Furbs. Other options such as employee benefit trusts and family benefit trusts proved much less popular in the results.
Bill Cohen, a partner at Deloitte, suggested that many organisations are waiting to learn what their competitors are doing in respect of pension provision before they make a final decision about what changes to offer their own executives. But he adds time is now running out and companies need to urgently agree their post A-day policies with executives.
Orlando Harvey Wood, partner in consulting at Deloitte, says: “Companies will be sensitive to criticism from shareholders that they are continuing with generous pension policies for executives. No-one wants to be seen to pay more as a result of A-day but finding an alternative solution that meets other criteria such as retaining key talent, is not a simple decision.”
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