spread betting firm IG Index has introduced a new defined contribution pension arrangement for its staff to take advantage of savings that will be reduced as of April 2006.
Currently, individuals are able to take a tax-free cash lump sum relating to their salary and length of service. However, as of A-Day this will be halted, when employees looking to retire would only be able to release 25% of the value of their fund tax-free.
So IG introduced a contracted-in money purchase (Cimp) scheme, which is an approved scheme with an Inland Revenue employee contribution limit of 15% where the pension is usually taken at a specified age as a tax-free lump sum. Contributions are deducted from the members’ gross salary before income tax is deducted, allowing both the employee and the company to take advantage of savings.
Tim Howkins, finance director at IG Index, said: “You can take advantage of the window of opportunity up to A-Day and get potentially 100% tax free cash on the lump of cash that you contribute into the [scheme] up to that date. I thought that was a very neat idea. [Our pension advisers] said we were mad not to be doing [some form of] salary sacrifice but I never got round to doing anything about it.”
IFA firm Millfield Partnership set up the scheme and made sure that employees understood what was going on.
Garin Squires, technical pensions consultant at Millfield, explained that there has been a lot of interest from organisations looking to set up the best deals for staff. But he warned that to get the best out of the current rules, employers must act quickly. “[The benefits] are limited. Once you get too close to A-Day you can’t do too much about it.”