The government is planning to bring in a 60% tax on pension savings above £1.4m from 2005. KPMG is expecting the real tussle to be between institutional shareholders and company boards, because of the inevitable remuneration increases to compensate for the massive tax change. The new levy would tax contributions on pensions savings over £1.4m, which KMPG calculates will hurt executives earning more than £300,000 a year.
Unless companies compensate senior staff, many are expected to retire early to avoid the tax. Sean O’Hare, head of executive compensation for KPMG, said: ‘They’re going to have discussions with their employer to seek compensation. There are many ways of doing it. It could be salary, bonus plans or share options scheme.’
It means the pension disclosures and remuneration of top executives in the annual accounts will become even more of a flash point between company boards and institutional shareholders.
‘The issue is whether they will put something in for a select group of employees. I think shareholders will raise objections,’ said O’Hare.
The scheme will leave partners in accountancy firms unscathed because of their self-employed status.
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