Yesterday, the Government said it would work with the industry on "alternative ways" to implement pension tax relief restrictions, including reducing the annual allowance to between £30,000 and £45,000 instead.
However, it is not yet clear how such a reduction would be applied to DB pension accrual.
The table below - kindly provided by Towers Watson - shows the tax charges that would be incurred by members of defined benefit schemes offering 1/60th of final salary for each year of service if the Government increased the annual allowance multiple to a factor of 15:1 and set the annual allowance at £35,000.
Towers Watson said this assumes no uplift is applied to the starting value to reflect inflation.
In each case, it is assumed that the individual receives a 5% pay rise during the year. In a final salary scheme, each pay rise that someone gets increases the value of the pensions they have earned in the past.
Table 1: Tax charges arising from reducing the annual allowance to £35,000
Row Headings: Number of years service at start of year
Column Headings: Salary at start of year (£)
Source: Towers Watson
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