What does this mean for senior employees?

The examples below illustrate the scale of the potential impact on people with higher incomes, based on current proposals. As employees’ future salaries rise, more and more people will be affected by this legislation, particularly if the “bands” remain constant.

Table 1. Equivalent reduction in total gross pay for employees with high incomes

* The figures above assume that each member is entitled to a 50th DB pension based on basic salary and member contributions are 5 percent of basic salary. Salary and bonus increases are assumed to be 5 percent. The figures assume no additional income from other sources.

What does this mean for employers?

The proposed changes are not like traditional tax hikes, where employees would typically be expected to bear the additional costs themselves. Instead, employees will expect their employers to support them in identifying alternative solutions. These could consist of other forms of pensions or new savings products. Employers will also be expected to review both the level and the mix of rewards the employee receives, in addition to providing financial education/advice, and for some, wider options (e.g. working overseas, reducing working hours, etc.).

We summarise below three questions employers need to be asking themselves in the coming months:

How companies respond to this issue will define their employment brand for senior employees in key roles within their organisations in the coming years.

Taxation of high earners: View recent webcast

For more information on this subject, please contact:

Eddie Hodgart

+44 020 7178 3124

E-mail

Nigel Roth

+44 020 7178 3526

E-mail

Roger Breeden

+44 020 7178 5784

E-mail

Kevin Painter

+44 020 7178 7684

E-mail

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