UK - Planned reductions in higher rate tax relief on pension contributions have caused nearly 60% those in charge of pension schemes to rethink existing pension projects, according to Hewitt Associates.

The consultants revealed the findings from a teleconference also showed 80% of attendees believed the recent UK Budget changes, scheduled to come into effect in 2011, will make it more difficult to make decisions about the scheme over the next two years.

Alistair Darling, Chancellor of the Exchequer, announced in the Budget last month that those earning more than £150,000 a year would see existing higher rate tax relief of 40% on pension contributions gradually tapered down to 20% from April 2011. (See earlier IPE article: UK Budget cuts higher rate tax relief)

Hewitt has claimed the proposed changes, along with a new interim tax charge to stop people taking advantage of the delay in implementation, have caused "uncertainty and confusion" and will "further undermine corporate pension provision".

Kevin Wesbroom, principal consultant at Hewitt Associates, said: "These latest changes are a major roadblock for companies and pension schemes. In an environment where companies need to be proactively planning their way out of the recession, the ambiguity of the changes laid out in the Budget is forcing schemes into a state of paralysis for another couple of years."

Although the government intends to consult on the proposals ahead of the implementation, Hewitt claimed its survey of 162 trustees, pension managers and HR directors demonstrated schemes are "wary of making any long-term decisions in the absence of greater guidance - leaving many in limbo".

Wesbroom said: "Three years after pension simplification, these changes have the potential to complicate things further. By making pensions less attractive by increasing taxation, these changes have the potential to seriously undermine corporate pension provision."

He argued the uncertainty means employers are unable to make "serious progress" in addressing executive pensions, or take on any "serious modelling or alternative planning, and although he admitted "this is not quite the final death knell, it is another move to increase yet further the complexity in planning for pensions".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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