UK’s Top Executives Use Pay Rises To Offset Pension Tax Liability

by Robert Lee, Tax-News.com, London

15 September 2004

An independent pay consultant has warned that the UK government’s decision to increase taxes on individual pension pots is helping to drive up pay rises for company bosses.

Quoted in the Financial Times, Cliff Weight, a director of Independent Remuneration Solutions, spoke of growing evidence that the salaries of the UK’s top executives are increasing as they seek to avoid being hit by new tax provisions that could subject their pensions to tax at up to 55%.

"I predict a surge in salaries as directors seek to maximise their pension benefit prior to the new pension rules becoming effective,” stated Mr Weight.

New rules due to be introduced from April 2006 will affect how pension pots exceeding £1.5 million are to be taxed. Some experts have suggested those who have earned more than £150,000 for a long duration will be hit hardest.

However, the value of a pension pot before April 2006 may be ‘protected’ from the new regime through effective tax planning, noted Mr Weight, who believes increasing salary levels resulting in higher transfer values on final salary schemes are motivated by the new tax rules.

“The enhanced protection provision makes it attractive to accelerate future salary increases before April 2006,” he observed.

The pay packets of senior bosses have risen by an average of 7% over the previous year, according to an analysis of 160 company reports carried out by Independent Renumeration Solutions.

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