A Towers Watson report said the increase is particularly pronounced for employers, whose one-off costs are now expected to be £330 million rather than £40 million. Annual costs are now expected to be £115 million, rather than £90 million.
All in all, the new impact of the cost during the transition to the new regime is £900 million – or around £3,000 for each of the 300,000 taxpayers affected. That compares to the £305 million estimate published in December.
“Restricting tax relief for people with incomes above £130,000 is fiendishly complicated, especially for those in defined benefit plans, and complexity costs money,” said John Ball, head of defined benefit pension consulting at Towers Watson, in the report. “Some of the original assumptions were from cloud cuckoo land. For example, the Government said each employer would only need to spend £250 on communicating changes that could add thousands of pounds to senior employees’ tax bills, and that pension plans could deal with members’ queries in half an hour at a cost of £20 per member.”
According to the Towers Watson report, the U.K. Government now assumes that:
- employers will spend between £500 and £2,000 each on communications.
- initially, employers will devote eight man hours per affected employee in a defined contribution plan, and 16 man hours per employee in a defined benefit plan, to dealing with inquiries, at a cost of £25 per hour. This will then fall to two hours for DC plans and four hours for DB plans.
- pension plans will devote an average of four hours per member in defined benefit plans and two hours in defined contribution plans to dealing with member questions. This will cost £40 per hour. Further one-off costs of four hours per member will be incurred for DB plans only.
- around 40,000 people will exercise the option to make their pension plan pay a tax charge of £15,000 or more on their behalf and deduct the money from their benefits.
“This is supposed to be a tax on individuals, but the Government doesn’t want to ask people to write checks for more than £15,000 when they complete their self-assessment forms,” said Ball. “It is therefore putting pension plans in the front line of tax collection. This will lead to higher administrative costs as adjustments will have to be made to benefit estimates not only at the time the tax is paid but when annual benefit statements are sent out or transfer values are calculated.”
« MO House Okays Terror Investment Ban