Heinz UK and Ireland is developing a strategy to help high earners manage April’s changes to pensions tax relief and is planning to set up a bonus sacrifice arrangement for all staff.
The firm hopes to have the bonus sacrifice arrangement, being designed in conjunction with Ernst and Young, in place by June before it awards bonuses to employees in July. Staff that take advantage of the arrangement will be able to legitimately avoid tax on their bonus by putting it into their pension.
Ken Horrocks, head of reward at Heinz UK and Ireland, said: “We are very much in the infancy in the design on this and I am very keen we do not break any tax rules. In principle, it would be open to everybody.
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“Our pension schemes are now completely employer-funded. It is all paid in by the business, but individuals can agree to have their salary reduced by the equivalent amount of what they would have paid in.
“If someone was in a 50% tax bracket, only 50% of their bonus would get into their hands. If they paid it into a savings vehicle, they have already lost half of it. If there is a way the company can pay that money into the person’s pension scheme on a gross basis, they are getting 100% of that money in their pension.”
After establishing that about 30 of its high-earners will be affected by the reduction in the annual tax-free contributions allowance from £255,000 to £50,000, Heinz is helping affected employees to understand the options available to them. This month, it will provide briefings on the changes for these employees, some of whom will already have access to an allowance that can be put towards tax advice. Higher-earners immediately below executive level will be offered employer-funded sessions with consultancy Aon Hewitt.
Horrocks said some pension scheme members might need to reduce their contributions to avoid the tax hit, while those with high salaries and long service may not be able to remain in the pension scheme without incurring a tax penalty.
One option Heinz UK and Ireland is considering is providing cash equivalents to the amount that employees who are over the £50,000 limit would have put into their pension.
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