The changes to the taxation of high earners’ pensions emphasises the need for alternatives to ill health early retirement pensions says Canada Life Group Insurance.
The provider says spikes in entitlement when people are given ill health early retirement pensions could see them breaking the £50,000 annual limit.
Paul Avis, director of sales and marketing at Canada Life Group Insurance says: “Ill health early retirement pensions (IHERP) are under scrutiny. Reducing the annual pension allowance to £50,000 is a further reason why alternatives to IHERP are needed and that group income protection is a logical replacement vehicle.
“The reduction of the annual pension allowance means that any pension contribution whether from an employer or an employee in excess of £50,000 will not benefit from tax relief. This has a knock on affect for IHERP because when provided, it is often enhanced creating a sudden spike in contributions that would exceed the annual allowance. In July, when the Treasury first proposed restricting pensions tax relief to a reduced annual allowance, it also suggested that these spiky benefits should be removed and ’Ill health benefits could be replaced by permanent health insurance’. Lord Hutton’s report on changes to public sector pensions also identified the need to provide ’an effective transition to new ways of providing for retirement pensions and protections against risk of ill health, death and redundancy’.
“So if alternatives to IHERP (and self-insured death benefits) need to be found across both the public and private sectors, the group risk market can provide solutions. We are possibly witnessing a paradigm shift in the way that insured group risk benefits are viewed and long term absence is managed.”