Kate Smith from Aegon says:“Employers need to get ready to deal with a rush of pension-related enquiries as we head towards 6 April 2016, the day the lifetime allowance falls once again, this time to £1 million. Employees with large pension pots, including long-serving Defined Benefit members, will want to work out if they are affected and will look to their employers for support.
“Employers, if asked, have to facilitate valuations of their employees’ pensions so they can check how much their pension is worth against the lifetime allowance. Some employees may then decide to protect their existing pensions against a future tax charge, by opting to fix their personal lifetime allowance at £1.25 million; known as ‘Fixed Protection’. The downside is that no further contributions, or future benefit accrual under defined benefit schemes can be made, including employer contributions. If contributions are made, Fixed Protection is lost resulting in potential tax consequences for the employee. Employers will need to keep records of any employees who have applied for protection against the lifetime allowance so they can choose to opt-out of automatic enrolment or re-enrolment.
“Employees who opt for Fixed Protection, can no longer benefit from their employer’s pension contribution. They may ask their employer to compensate them, as they are effectively taking a pay cut by declining further pension contributions. Employers will need to review their remuneration policies to decide if and how they will compensate affected employees.”
Employer’s Checklist
1. Put in place processes to respond to pension valuation requests promptly. Employees may ask for early ballpark valuations and the 5 April 2016 valuation used to test against the Lifetime Allowance.
2. Keep a record of employees with protection against the Lifetime Allowance.
3. Make sure employees with protection are alerted to the automatic-enrolment or re-enrolment dates so they can take action to opt-out
4. Review remuneration policies, decide whether and how the Company will compensate employees for the loss of their employer contribution
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