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December 10, 2010 4:38 pm
Senior executives who have topped up their pensions to the maximum each year will no longer turn to expensive offshore schemes after the government announced a clampdown this week.
Employer financed retirement benefit schemes (EFRBS) will now suffer higher tax charges in an effort to close what the government saw as a loophole in retirement saving, it said this week.
Companies had been setting up the offshore retirement schemes for their highest earners in the past 18 months. The schemes became popular after the government originally restricted pension saving in the 2009 Budget and were widely tipped as the next big thing for employee remuneration.
EFRBS initially had attractive tax benefits. Payments into the schemes were free of income tax and national insurance for employees. They were also attractive to employers as they offered a deferred corporate tax deduction, which came into effect
when the employee withdrew their benefits.
But the schemes came under the spotlight of the Treasury as some were allowing employers to deduct corporation tax with immediate effect. From this week, any new payments into EFRBS will no longer be free of income tax or national insurance.
“This announcement marks the end of EFRBS,” said John Lawson, head of pensions policy at Standard Life.
Instead, senior executives are likely to rely on old-fashioned cash payments or bonuses to top up their retirement arrangements.
From next April, people will only be able to save £50,000 a year into their pension with tax relief. The move is expected to affect around 100,000 people. The lifetime allowance for pension savings will also be reduced from £1.8m to £1.5m.
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