Pension advisers are predicting widespread use of tax structures to make the most of the new flexibilities introduced by the government’s freedom and choice consultation, warning the door to mass avoidance remains wide open.
Advisers have responded to the limited restrictions on sacrificing salary for pension by questioning how the government can expect them and the employers and individuals they advise from not using the new flexibility on offer.
The Treasury told Corporate Adviser yesterday that it will not be bringing in anti-avoidance measures, but will look out for individuals attempting to manipulate the system in ways that are not intended.
But advisers have said that unless extra rules are introduced, legitimate tax avoidance will be widespread. Rough calculations by Corporate Adviser have estimated the extent of the tax revenue at risk as being between £10bn and £15bn a year, although the figure would be higher than this in the 2015/16 tax year as individuals sacrificed more than £10,000 into pension.
Jelf Employee Benefits head of benefits strategy Steve Herbert says: “The consultation response has in no way closed the door to massive tax leakage. They have limited the damage, but nowhere near stopped it. What I said the day after the Chancellor sat down in March holds true – that they will have to add layers of complexity to solve this massive opportunity for tax avoidance that he has opened.
“As far as I can see, the consultation response contains no penalty for the vast majority of people avoiding tax. But tax avoidance is legal. They have publicly set out the rules, so I don’t see how they can frown on someone making the most of them.”
Towers Watson Dave Roberts says: “Whatever structure the Treasury establishes for making pension contributions, if that gives legitimate opportunities for creating tax efficiencies, I can’t see why employers wouldn’t want to use them.”