More than a third of respondents yet to take action on removal of earnings cap

More than a third (36%) of respondents have not yet taken action to remove the earnings cap on group risk benefits paid out to employees in occupational pension schemes, according to research by industry body Group Risk Development (Grid).

The research, which found that a further 30% of respondents are still undecided on what action to take, comes one year after HM Revenue and Customs (HMRC) removed the earnings cap, along with other pre A-Day rules on 6 April 2011.

Under the rules, employer-sponsored death-in-service arrangements were subject to the previous HMRC limits, for example, four-times salary for lump-sum death benefits.

HMRC did recognise the need for transitional arrangements to allow employers to move to the new regime over a period of time. These expired a year ago, on 5 April 2011, when post A-Day rules were automatically applied.

Unless other action was taken by employers or trustees, such as putting a salary cap back in, the earnings cap was automatically removed and the lifetime allowance came into play as the maximum lump sum payable on an employee’s death in service.

The research also found:

  • 15% of respondents have opted to put a salary cap back into their schemes.
  • 11% have removed the earnings cap all together.

Katharine Moxham, spokesperson for Grid, said: “It is disturbing to see just how many employers have failed to give any thought to how they deal with the removal of the earnings cap.

“If they do not act now, they continue to risk potentially crippling uninsured liabilities.”

The earnings cap was notionally set for 2012/13 at £137,400, based on a retail prices index (RPI) basis, or at £135,000 on a consumer prices index (CPI) basis. It was introduced in 1989 to set a further limit on the salary that could be used to calculate benefits.

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