Top earner pension change at Pembrokeshire County Council
5:50pm Sunday 22nd January 2012 in News
Changes to the way Pembrokeshire County Council pays its top earners’ pension contributions seem to fly in the face of the Government’s ‘we’re all in this together’ message, financial experts have said.
The Western Telegraph has learned that at a private meeting of the Senior Staff Committee in September 2011, members agreed that high earners will be given the option of “receiving the equivalent of the employer’s contribution so that they make their own alternative arrangements for saving for retirement”.
However, experts said that once the cash was paid to the employees there was no way to ensure that it was actually paid into another pension plan, although there would be tax payable if that was the case.
The decision was made following a report on the impact of pension contribution arrangements of changes in taxation provisions affecting higher earners.
The changes impose limitations and penalties on the levels of annual contributions and the taking of benefits.
According to the meeting minutes the changes meant that at certain points of people’s careers contributing to the pension scheme would create substantial tax liability, potentially reducing incentives for recruitment and promotion.
Two financial experts have said that while paying the equivalent sum of pension contributions directly to employees to bypass the new liabilities was legal, some would question the ethics.
One said the move appeared to be “aimed at keeping the Rolls-Royce on the road for those privileged enough”.
He added: “Some employers have pointed to the contract of employment that they have with their higher paid employees, promising generous pension provision at a level which is now being penalised by the government through tax charges.
“Once an employer has paid an employee, the employee can do what he or she likes with the cash. The employer has no power to check or monitor this, to ensure that the extra money goes towards retirement. It could just as easily go towards a luxury holiday or a top of the range car.
“There is nothing illegal here. But the ethics of insulating high earners from tax measures imposed on everyone else by the government are certainly questionable.
Are we really all in this together?”
It was resolved that the option be made available to senior staff on the basis that there were no additional costs to the council.
A county council spokesman confirmed that tax would be payable if the cash was not invested in another qualifying pension scheme and added: “Other staff have tax incentives with no tax liabilities. There is therefore every incentive for other staff to stay in the pension scheme. If such tax penalties are imposed on other staff, the facility will be adjusted to provide the same terms for them.
“Most staff have no additional tax liability for pension benefits and receive tax deduction on all their contributions.
“The recent changes in HMRC rules encourage arrangements of this sort for higher earners and will generally result in significant additional tax being paid by individuals during their careers as opposed to after their retirement.”
She added that the recent tax changes impact on senior staff at the point of promotion and/or at retirement, not on other officers.
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