A third of companies are revamping how they reward their higher earners, due to new restrictions on the amount people can pay into their pension tax free a year, according to PwC research.
The professional services firm’s survey of 130 companies showed that changes to annual and lifetime allowance for higher earners, which take effect in April 2016, are proving to be a challenge.
More than a quarter - 26 per cent - of those surveyed are reviewing the role of pensions for all employees as a result.
Philip Smith, head of defined contribution pensions at PwC, said that it is clear that pensions are set to play a much smaller role in the reward packages of higher earners in the future.
“This could have a knock-on effect for all employees, as a significant proportion of decision makers will be disenfranchised from pension saving. Over the long-term this cannot be a good thing.
“Higher earners will have to fundamentally change how they save for their retirement as their workplace arrangements will change and one of their traditional back-ups, buy-to-let property, will also become a less viable alternative option from next April due to stamp duty changes.”
The changes to the annual and lifetime allowances, announced in this year’s Summer Budget, will mean that from April the current £40,000 annual limit will be reduced to £10,000 for anyone with annual gross income of over £210,000.
This calculation is based on total income - including income from other sources such as property - and PwC calculations suggested anyone earning over £90,000 a year could potentially be affected.
There have been increasing calls to scrap the lifetime allowance as part of the Treasury’s review of the tax incentivisation surrounding pensions.
Jeff Steedman, head of Sipp and Ssas business development at Xafinity, said that HM Treasury should review the lifetime allowance next year.
“George Osborne may still have a few more rabbits to pull out of his hat and perhaps one that would be most welcomed would be a review of the ever decreasing lifetime allowance which seems remarkably complicated,” he commented.
“Given the annual allowance has remained at £40,000 for a few years now, will he loosen the purse strings at the top end to encourage people to save for retirement and not be taxed to death when claiming their hard earned pensions?”
PwC’s research also suggested the changes are acting as a further catalyst for companies to close their DB pension schemes. Three in 10 companies that have DB schemes are considering closing future accrual for scheme members.
Over a third - 35 per cent - have made the decision to implement cash allowances. For the companies that have closed to new entrants, but remain open to accrual, half are in discussion to offer cash allowances.
Earlier this month the latest edition of the Purple Book, published by The Pension Protection Fund and The Pensions Regulator, showed the percentage of DB schemes open to new members has remained stable at 13 per cent.
