Proposed changes to pension taxation as outlined in the Government's 2009 Budget could undermine corporate pension provision, putting them at further risk, warns Hewitt Associates.

The consultant is concerned that the proposal to levy additional tax on high earners' pension contributions from 2011, with interim measures to deter members from amending the pension arrangements prior to 2011, could make it more difficult to make decisions about schemes.

Hewitt has conducted a poll of attendees at its post-Budget teleconference, UK Budget 2009: Implications for Pensions and Other Benefits, and found that 80 per cent supported the view that this uncertain regime will affect the ease of decision making.

Almost 60 per cent added that the new changes mean pension projects that are currently underway will need to be revisited as a result.

"These latest changes are a major roadblock for companies and pension schemes," commented Kevin Wesbroom, principal consultant at Hewitt Associates. "In an environment where companies need to be proactively planning their way out of the recession, the ambiguity of the changes laid out in the Budget is forcing schemes into a state of paralysis for another couple of years. They are not able to make any serious progress in addressing executive pensions, or take on any serious modelling or alternative planning."

Long-term proposals are due for consultation over the next two years, and pension schemes and advisors will be permitted to provide input. "Three years after pension simplification, these changes have the potential to complicate things further. By making pensions less attractive by increasing taxation, these changes have the potential to seriously undermine corporate pension provision. With many CEOs and CFOs facing a higher personal tax bill, plus the strain of pension deficits, will these changes mark the final decline of pensions? While this not quite the final death knell, it is another move to increase yet further the complexity in planning for pensions," Wesbroom concluded.

- Pensions Age May 2009

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