Employers would be more willing to repair deficits in pension funds, if the tax relief on large ‘catch up’ payments was made available more quickly. Or so argues the UK Society of Pension Consultants (SPC), which recently held a meeting to discuss current concerns on pensions.
SPC says it is “firmly convinced” that relaxing the Inland Revenue’s rules on tax relief on large contributions would alleviate the funding gap in UK occupational pensions. It says it hopes the UK Inland Revenue’s Pension Industry Working Group, set up to prepare for the new pension taxation regime beginning in April 2006, will take this into account.
“We believe this would be the right time to urgently re-examine policy in this area,” says SPC Secretary John Mortimer in a letter to HM Revenue & Customs. “On the basis of the discussion at our meeting the requirement to spread the tax relief can on occasions be a significant disincentive to making the deficit reduction contribution at all. This is not the first time that the Revenue has been asked for a reconsideration of the rules, so that tax relief on special contributions to reduce deficits does not have to be spread, but the rules have remained unchanged. It is surprising that the tax relief spreading rules make no exception for large contributions paid with a view to reducing these deficits. As far as we can see these contributions will be treated in exactly the same way for spreading purposes as any other large contributions.”
The SPC accepts that smaller schemes might pose difficulties for Revenue. “One of the key problems can be where the active membership of a scheme is small, so the deficit, and hence deficit repair contributions, can appear large, and so fail to be spread in the first place,” says Mortimer.
However the SPC says it sees no justification for spreading tax relief if liabilities are largely to provide ‘current’ funds to pay pensioners.
SPC is the representative body for accounting firms, solicitors, life offices, investment houses, investment performance measurers, consultants and actuaries, independent trustees and external pension administrators involved in the UK pensions industry. SPC’s membership employs some 14,000 staff providing pension related advice and services.