The Conservative/Liberal Democrat government’s The coalition: our programme for government, published last month, outlined a number of measures that will affect employee benefits, particularly pension and share schemes.
One initiative is to tax non-business capital gains at rates similar, or close to, those applied to income. The tax will apply only to gains classified as non-business assets. This has raised concerns over the future of all-employee share plans and industry body IFS Proshare said shares owned by staff should be classed as business assets. The new government has yet to clarify whether employees’ shares will be classed as business or non-business assets.
Julie Richardson, head of employee share ownership at IFS Proshare, said: “The principle of investing in the company you work for is sound and we would not like to see this undermined by the potential consequences of CGT changes.”
Geraldine Pamphlett, share plans manager at BHP Billiton, added: “Employee share schemes are important to the success of a company and the economy. It would be detrimental to radically increase the CGT percentage.”
The government will also press ahead with plans to scrap rules that make it compulsory for staff to buy an annuity at age 75. Andrew Tully, pensions policy manager at Standard Life, said that although this was a step in the right direction, more could be done to help the redistribution of pension wealth after a person dies. “A big plus would be allowing pension wealth to be passed on to family members without excessive tax charges. At the moment, if [a pensioner] tries to pass on pension wealth to someone and they die after age 75, the tax charges are generally 82%, which is prohibitive.”
Deborah Cooper, a partner at consultancy Mercer, said the concept of having to take out an annuity at 75 was misguided. People who did not buy an annuity at 75 had an alternatively-secured pension, which is a drawdown arrangement with strict rules, she said. “At the moment, the only people who can afford not to annuitise are those with large pots of money. A simpler arrangement might be to recognise people with small pots of money are unlikely to afford drawdown and unlikely to be able to manage the risk of not having an annuity.”
The government also plans to phase out the default retirement age and review when the state pension age should rise to 66. It will restore the earnings link for the basic state pension from April 2011.
An independent commission to review the long-term affordability of public sector pensions will also be set up. Mike Cooke, lead officer for pay and reward at the Public Sector People Managers’ Association, said any crackdown on public sector benefits would hit recruitment and retention.
Other measures will include a rise in employer national insurance thresholds, and rises in personal tax allowances.
The government is also to review the national employment savings trust (Nest) contract with administration provider Tata Consultancy Services.
However, the coalition programme did not mention the Lib-Dems’ proposals to abolish pension tax relief for high earners and instead limit tax relief on pensions to 20%. But some pension providers are advising clients to rush through pension contributions in case the policy reappears in the emergency Budget on 22 June. Other providers do not think the government will backtrack on this.
Overall, the general consensus in the pensions industry is that the government will retain Labour’s plans to reduce tax relief on pensions for staff earning above £150,000.
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