Employment contracts and pensions

Organisations are being encouraged to use A-day pension changes to carefully review employment contracts.

Workers’ contracts that detail employer obligations to make pension contributions or promise certain benefits will need to be looked at because these may no longer be relevant after April 6 2006.

For instance, the earnings cap, which limits the amount of benefits an individual can receive into a tax-approved arrangement, will be removed from all occupational schemes as of next year. And this will have a substantial impact where the earnings cap is mentioned in an employee’s contract, particularly with with regards to group risk benefits such as life assurance cover.

Employees who started work after March 1989, when the earnings cap was introduced, and who now make more than £100,000, are likely to be most effected because the level of life assurance afforded has been restricted to four times the earnings cap rather than actual salary.

Peter Maher, director at financial advisers Smith & Williamson, said that in some cases offering unapproved life assurance schemes outside of pension arrangements would make most sense.