Cash Incentives To Be Taxed

Some employers are offering employees a cash incentive if they transfer out of a final salary pension scheme. However HM Revenue and Customs are now planning to make these incentives subject to tax and national insurance in the hope that they will be phased out.

Concerns have been raised that employees could leave the final salary scheme for the cash incentive, even if it would be in their best interest to stay. Concerns have also been raised that advisers could be blamed if employees lose out by taking the incentives and leaving the scheme. Experts are welcoming these changes as the tax element will reduce the attractiveness of the cash benefit and employees will gain a better understanding of what they would be giving up.

Our view

It is this Government that introduced law changes regarding the funding of company pension schemes that put pressure on employers and it now gives pressure to advisers trying to second guess what next move the Government will make when trying to advise clients. Guess who will end up ‘picking up’ the compensation bill – financial advisers. Our advice to all financial advisers is to steer clear of this advice area and ensure clients sign waivers against claim rights as this Government makes more u-bend turns than a plumber.