Two-fifths (40 per cent) of employers have difficulties with the issue of pensions tax relief for their higher earners, according to Smarterly.

Research found that almost all (96 per cent) companies have had to come up with initiatives to deal with higher earners.

More than half (51 per cent) of employers allow their higher earners to put excess pension contributions into an Isa in a bid to help grow their tax-free savings.

Employees earning more than £150,000 face limits on the amount they can contribute to a pension scheme without incurring high tax charges.

Fewer than 3 per cent of employers said they did not have any employees who were affected by the issue.

Smarterly head of proposition, Steve Watson, said: “The fact is that pensions for higher earners can’t be the only source of retirement funding and ultimately income; the introduction of the tapered annual allowance has seen to that.

“Moving forward, a retirement fund is likely to consist of a pension supplemented by other savings vehicles such as Isas. The move is inevitable.”

Watson added that this dual approach should be used for all employees, not just high earners, in order to address issues such as “poor engagement levels with pensions and a lack of accessible funds”.

The research also found 4 per cent of employers thought employees’ tax issues were not their problem, offering no compensation or alternatives to workers who chose to reduce pension contributions and miss out on employer contributions in order to avoid tax charges.

Watson stated that these restricted pension contributions would probably not be enough to build up an adequate retirement fund.

“Smart employers should consider a dual approach; reduce pension contributions and look for a different product to run alongside creating a much more effective and rewarding retirement funding solution for all levels of employees,” concluded Watson.

Share Story: