One in five big companies are planning to cap workplace pension contributions at £10,000 a year for all workers.
Industry experts say companies are taking advantage of new pension rules starting from April that limit the amount high earners can pay into their pensions, even though they represent a fraction of large business workforces.
By capping employee contribution levels, the companies also limit the amount of contributions they have to make into the schemes.
In April, the government is changing annual pension contribution thresholds.
Anyone earning up to £150,000 can pay £40,000 into a pension, but those earning more have their relief tapered off to £10,000 by the time they earn £210,000.
£10,000 a year cap
Pension consultancy Mercer says after polling more than 100 firms with tens of thousands of employees, their results show around a fifth of companies are ready to set pension contribution limits at no more than £10,000 for all workers.
Most of the companies, which were not named, are in listed as FTSE100 businesses, said Mercer.
“They say it’s to make administrating pensions easier as they do not have to monitor the incomes of all staff,” said a Mercer spokesman.
“Many may have incomes outside the workplace that boost their earnings and employers would find tracking this very difficult.
“It’s much easier for companies to say annual pension contributions are set at a total of £10,000 from the worker and employer and that’s that because no rules are broken and no penalties or other problems ensue from breaking the through the threshold.”
Salary top-ups
Instead of pension contributions, some firms are offering workers pay rises as they believe taxing income twice is a waste of money.
Under the new rules, income is taxed on payment by an employer and again when the cash is taken out of the pension by the employee once the 25% tax-free lump sum is exhausted.
Mercer pointed out that the top-up payments may have unforeseen consequences as some workers could pay more tax if the extra income moves them into a higher bracket, while employers had no guarantee that the cash would be saved for retirement.
Employees would also lose pension contribution tax relief on their savings.
