AS2011: pensions measures to save £450m a year

THE GOVERNMENT has said that measures to prevent excess relief on employers’ pensions contributions are due to save the Exchequer £450m a year.

Chancellor George Osborne today announced he was going to clarify rules surrounding the use of future income on assets to plug employers’ pensions deficits. The measures will mean that tax relief will “accurately reflect the amount of payments made by an employer to their scheme”. But the regime will still allow businesses to use income from assets in their pensions schemes.

Currently, aggressive schemes enable tax relief to be given twice: up-front for the discounted value of a future income stream; and again for each installment of the income stream.

However, from now on, up-front relief will only be given for the contributions that fall within the structured finance legislation.

Alex Henderson, tax partner at PwC, said that this change will help clarify the rules and will therefore make the relief more accessible. “We expect this area to be of continuing interest for many employers facing deficits in their schemes and employers will be pleased to have the additional certainty of specially designed legislation,” he said.

However, he warned that the chancellor’s forecasts could be optimistic. “I do query whether they would make that much because what has been driving these schemes has not been the desire to get tax relief but to reduce pensions deficit,” he added.

Mike Smedley, pensions partner at KPMG, said the arrangements have grown in popularity in recent years and welcomed the chancellor’s commitment to them.

“The Treasury has endorsed the use of these structures and confirmed that an up-front corporation tax deduction is still available – provided the arrangements are structured in the right way and result in a fair tax treatment over their life,” he said. “But there will be an immediate halt to some of the aggressive structures on the market that effectively generate a “double-dip” on tax relief.”