Employers need to consider lifetime limit on new hires

Employers could save time and money by coming up with strategy to deal with new senior executives in relation to the lifetime allowance limit.

Many employers focused on pension arrangements for their existing employees when the £1.5m limit came into effect last April, but have not reviewed their corporate policy on this issue since then. Employees that exceed the lifetime allowance, however, will be taxed at a rate of 55% on anything over the lifetime limit which currently stands at £1.5m.

Mick Calvert, head of executive financial planning at Watson Wyatt, said: "In the run up to A-day last year, most employers understandably focused on the pension arrangements of their existing executives, but, in doing so, many did not develop policies to deal with the impact of the legislation on future hires."

He added the best solution for employers was to find a fair cash equivalent that could be offered to new staff whose previous pension savings had already taken them up to the lifetime allowance. "If you have got someone who has already got a lot of pension provision then giving them a lot of money into a [pension] arrangement is not going to be much use to them because it is going to take them over the lifetime allowance. Looking at putting some form of cash salary supplement option would seem the obvious thing to do," said Calvert.

Employers should also encourage employees to take advice based on their personal circumstances.