Summer Budget: Pensions annual allowance decrease will cause headaches

Summer Budget: Pensions annual allowance decrease...

Stewart Hastie, pensions partner at KPMG commenting in response to the Chancellor’s Budget announcement that the Annual Allowance for pension savings will be reduced from £40,000, to £10,000.

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Commenting in response to the Chancellor’s Budget announcement that the Annual Allowance for pension savings will be reduced from £40,000, to £10,000, Stewart Hastie, pensions partner at KPMG said:

“The reforms will create headaches for employees, employers and pension schemes. 

“By design, individuals going above the Annual Allowance are effectively being taxed twice. But under the proposals, a significant number of impacted individuals are unlikely to know what their Annual Allowance is until it is too late to do anything about it. Individuals may decide to restrict their pension savings to £10,000.

“Individuals will need more help and information from their employers and pension schemes.  Employers and schemes must ensure they have the right processes and systems in place to cope with these changes.

“Employers will also need to consider wider benefits as pensions become significantly less valuable than just paying cash for a much wider range of the UK employees than ever before."

Steve Simkins, head of public sector pensions at KPMG, said:

“Senior public servants will see an additional tax bill if they choose to stay in their pension scheme. Many may decide that they are not getting value for their contributions.

“A senior NHS consultant earning £150,000 will see the equivalent of a 10% pay cut as a result of today’s announcement.

“However given public sector schemes are set in stone, employees have two choices: in or out. Public servants may move from having gold-plated pension schemes to having nothing. With these new tax rules it is time for public sector pension schemes and reward structures to be reformed to enable more flexibility for employers and their senior employees. For example, retaining key NHS consultants may be key to the Government’s aspirations for the NHS.”

 

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About KPMG 

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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