Number looking to gain from tax advantages within pensions freedom ‘grossly underestimated’ says Jelf Employee Benefits
03 November 2014
Research from Jelf Employee Benefits and retirement workshops specialists LaterLife Learning shows that 1 in 2 employers could offer their older workers greater remuneration flexibility so that they can benefit from the new Freedom of Pensions rules.
The new legislation, which is due to come into force in spring 2015, will allow older employees (those over age 55) to access defined contribution retirement funds in any format they desire. It follows that employers could redirect salary payments for such employees directly into pension savings with both parties avoiding National Insurance (NI) liabilities, and with the employee still having full immediate access to their funds as required.
It has been estimated that this remuneration option could cost HM Treasury up to £20bn* every year despite the proposal to limit this practice set out in the Government’s response to their consultation in July 2014.
Jelf’s research among circa 200 employers asked if they would allow such flexibility. 35% of respondents indicated that they would offer this for all employees over age 55, with a further 15% willing to consider this on a case-by-case basis. Only 6% would not offer this option.
Commenting for Jelf Employee Benefits, Steve Herbert, head of benefits strategy said, ‘Our research shows that the appetite for this remuneration option may well have been grossly underestimated by the legislators. It remains to be seen if the rules will be tightened to avoid this practice becoming widespread, and if so how this can be achieved without damaging the concept of freedom of access to pension funds.’
The research also found that the new pension freedoms are of appeal to older employees. The survey of employees who had recently retired found that 22% would have used the greater access and flexibility regarding pension funds had it been available when they retired. Yet the number could be higher with another 9% still able to utilise this flexibility and a further 30% not sure.
The 2014 Jelf Employee Benefits Survey research also found that:
- 78% of employers haven’t yet made their employees aware of the proposed changes to pensions fund access, although the majority (67%) are gearing up to do so
- 69% of employers don’t currently offer pre-retirement courses to their staff.
Jelf is concerned that this lack of communication and support from employers leaves employees potentially exposed to making poorly informed choices that could potentially devastate income options for employees’ retirement years.
Tony Clack, managing director for LaterLife Learning, said, ‘There has never been a time of greater change within pensions legislation. Added to the removal of the default retirement age this increases the complexity of decision making and consequently the need for greater retirement education to assist with both financial and lifestyle decisions. As a result we are seeing unprecedented demand for our retirement courses, as more and more organisations recognise the necessity to assist their employees in preparing for retirement’.