Employers support tax reform to help low paid

In a survey compiled by the Association of Consulting Actuaries, 79 per cent of employers said the convolution of the existing regime is negatively impacting their business.

Businesses say tax issues are forcing employees to retire early and businesses to make unnecessary changes to benefit and pay packages, at a time when UK plc needs government support.

Eighty-nine per cent of those surveyed supported simplifying the rules even if some demographics are worse off, but most supported changes that would benefit lower-paid workers.

Most employers did not support a reduction in the overall level of tax relief, but two in five said this would be a price worth paying to help the government address the nation’s debt pile emerging from the Covid-19 pandemic.

Karen Goldschmidt, chair of the ACA’s pensions taxation committee, said: “The survey findings underscore the degree to which the present pensions tax regime has been distorted by short-term tinkering over the years. It is having an impact on the economy by reducing productivity and workplace cohesion. 

“The message is that there is a now urgent need for the Treasury and industry practitioners to find a consensus around the best way forward. The mounting dislike of the current complexity and adverse impact on business means that this task cannot be put off.”

Employers were also asked about their opinions on guaranteed minimum pension equalisation. Most expect to finish their projects within the next three years, but 34 per cent are still planning their moves and 6 per cent have taken no action.

A High Court decision in November ensured that there is no end to the headaches in sight for employers, ruling that 30 years of transfers out of schemes must also have the impact of unequal state pension treatment between men and women ironed out.

With costs, poor data and complexity topping the list of concerns about the requirements, 43 per cent of employers are looking to convert their GMPs back into regular scheme benefits, but this could rise to 60 per cent if simplifying steps were taken by the government.

“Schemes that have to carry out conversion urgently are taking legal advice, to find ways to manage what appear be pitfalls in the legislation. In the short term, we need HM Revenue & Customs to give clear practical guidance,”  Ms Goldschmidt said.

“But really, what we need is law change as soon as possible so that schemes can use conversion confidently to benefit members, by making it more likely that members will receive benefits in full because buyout would be cheaper, reducing the complex GMP restrictions, enabling income in retirement to be smoother, and making it easier for members to understand their benefits.”