Pensions - Articles - Members doing the unthinkable and giving up DB accruals

 With effect from 6 April 2016, employees with Adjusted Income of more than £210,000 will have an Annual Allowance of just £10,000 – any pension accrual in excess of that amount is taxed at up to 45%. If this pension accrual results in them exceeding the Lifetime Allowance at retirement, they can then be taxed again at 55%. Being taxed at 45% upfront and then taxed again at 55% at retirement results in the vast majority of pension accrual being paid to HMRC rather than the member.

 Many employers are now offering these employees an alternative: to receive additional salary in lieu of pension provision. As a result, high earners are increasingly looking to give up the accrual of future DB pension in exchange for additional salary. Members choosing to do this before 5th April 2016 can also apply for Fixed Protection to give them some protection against the Lifetime Allowance.

 Paul Darlow of Xafinity comments: “Having the opportunity to earn pension in a Defined Benefit pension scheme is increasingly rare. Whilst these arrangements are often seen as “gold-plated” the reality for high earners is increasing becoming rather different. If an individual’s Annual Allowance is Tapered and they also expect to breach the Lifetime Allowance at retirement they end up being taxed twice, with the vast majority of their pension often ending up with HMRC. With rumours of yet more restrictions to tax reliefs for high earners in March’s Budget we are seeing lots of members looking to do what previously would have been unthinkable, and voluntarily give up the accrual of future DB pension.”