Employers are increasingly deciding that the safest course of action is to assume annual pension contribution allowances are limited to £10,000 for higher paid staff to avoid the risk of unexpected tax charges, leading employee benefits consultancy Portus warns.
It says employers are worried their staff could face tax charges before it is too late to do anything about the new rules on tapering of allowances affecting staff earning more than £150,000 come into effect from April.
The consultancy, which advises more than 170 clients across a wide range of sectors, says companies are deciding to assume higher paid staff have an allowance of £10,000 instead of the maximum £40,000 to limit potential problems.
Portus Consulting Commercial Director Steve Watson says: “People are not aware of the cut in annual allowances and the effect of tapering and in any case it is so complex that people do not understand it.
“The issue is that people may not know what their annual allowance is until the end of the tax year and that is creating confusion for employers and employees.”
The difficult issue for employers is identifying who is likely to be caught by the new regulations; the definition of adjusted income includes private income, which is not on the employer’s radar.
Employees are encouraged to keep details of all taxable income including bonuses and any private income such as rental income, as well as all details on individual and company pension contributions.
After April employees with an adjusted income of more than £150,000 and a threshold income of more than £110,000 will see their £40,000 annual allowance cut by £1 for every £2 of adjusted earnings above £150,000 to a minimum annual allowance of £10,000.
Portus offers an online platform called RetirePort, where employers and staff can calculate their annual allowance. The system takes new regulations into account and warns users if they’re likely to exceed the limit.