Pensions tax bills lower under new proposals

NEW PENSIONS TAX proposals from the government have been lauded as good for members, but bad for the pension schemes themselves.

The Treasury has announced details of its introduction of the £50,000 annual tax free allowance from April 2011, which drops from the current rate of £255,000.

The details include members being able to ask their scheme to foot their tax bill.

The scheme will have to work out how to reduce their members’ benefits as a result.

KPMG pensions partner Mike Smedley said that members won’t have to “find” the money to pay their tax bill, and paying out direct from the account will see their effective tax rate at 67% for high-rate taxpayers, compared to 88% if they paid their own tax.

“The vast majority of employers are not making any special arrangements to reduce benefits for staff who breach the Annual Allowance, so this “scheme pays” option could be used more often than the Treasury originally thought,” said Smedley.