HR Industry News

Clampdown on employers dodging pension responsibilities

— 8 March 2007 —

Cash sweeteners, which are commonly used by UK firms to transfer staff out of final salary pension schemes, will soon be taxed by the government.

The Pensions Regulator had expressed concern that employers are using cash inducements to dodge their pensions responsibilities, so HMRC has announced plans to the clampdown on the practice.

Ceridian’s Simon Parsons says: “It is no surprise that the government is reacting to such schemes. Increasingly some employers are tempting employees into giving up their pension promise rights for limited tax free payments which transfer the future pensions risk entirely to the employee”.

These payments will now be subject to income tax and national-insurance contributions. And all the indications are that there will be no exceptions.

The move by HMRC is a necessary step to protect employees, but will not be welcomed by a minority of businesses trying to dodge their pension responsibilities. They will be doubly-annoyed if the regulator gets its way, as more onus will be placed on the employers themselves to provide more expert guidance and information to employees to ensure they are making fair and informed choices.

Pensions are little understood by young employees and retirement can seem a long way in the distance. It is tempting for individuals to want the cash now as opposed to consider the implication for later years of life, so the government push for better advice is sound on the employees part, although may be perceived as a further burden on employers.

Simon Parsons, Director of Payments, Benefits & Compliance Strategies, Ceridian UK Ltd.

Some experts predict that the move could be hard to implement, as the regulator’s guidance (which applies both where the transfer value is enhanced and where a cash inducement is paid) makes it clear that they have very serious concerns over the way in which these transfers are made.

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