High-earning non-UK nationals who pay into employers' overseas or offshore pension plans could be hi...
High-earning non-UK nationals who pay into employers' overseas or offshore pension plans could be hit hard by the UK government's £1.4m pension cap proposals, according to Mercer Human Resource Consulting.
Employees who pay into overseas or offshore plans with corresponding approval from the UK Revenue could soon lose their substantial tax benefits on future pension savings. At present, these employees receive full tax relief on their savings and, in some cases, can defer generous bonus payments into the plans. Employers also benefit from paying a lower tax rate on their contributions.
If the proposals are adopted, from April 2005 employees could be required to pay as much as 55% tax on their future savings. Non-UK nationals working in the financial services sector are most likely to be affected, with as many as 40% of high earners in this sector already above the £1.4m cap.
Yvonne Sonsino, European partner at Mercer Human Resource Consulting, said: 'The government's latest proposals could have huge consequences for employees in 'correspondingly approved' pension plans. If accepted, the changes will be a real shock to the system.'
Although clarification is still needed on the details of the proposals. Sonsino warned: 'Companies with correspondingly approved offshore plans should start thinking now about what to do if the proposals are accepted. The plans will no longer be as attractive for high earners, so alternative savings vehicles may be needed.'
Money earned before April 2005 will be protected from any future changes to tax treatment. Sonsino said: 'Employees might consider paying as much as they can into their offshore plan before then as their assets will be ring-fenced for the future.'
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