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Businesses shifting pension allowance risk to employees

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Employers are shifting the responsibility of ensuring pension contributions do not break new lower annual allowances to staff, research from employee benefits consultancy Portus shows.

Its study among HR directors across a range of sectors shows 60% of companies will ensure staff are fully informed of new rules but will rely on higher earners to take action on pension contributions.

Just 8% are restricting contributions to £10,000, although some will enable employees to contribute more based on their annual allowance at the end of the tax year.

The shift of responsibility to employees could lead to a rise in unexpected tax charges, once new rules affecting staff earning more than £150,000 come into effect from April, Portus warns.

The consultancy, which advises more than 170 clients across a wide range of sectors, says the difficult issue for employees is identifying if they are likely to be caught by the lower allowance as definitions of adjusted income include any private income.

Portus Consulting Commercial Director Steve Watson says: “Employers are taking action by ensuring the changes are communicated but the issue is so complex that people may not understand it.

“Employees might not know what their annual allowance is until the end of the tax year and may struggle to keep on top of employer and employee contributions as well as the details of taxable income plus any private income and will risk unexpected bills.”

From 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.