OREANDA-NEWS. July 14, 2015. Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that changes in allowances and a consultation on unfunded employer financed retirement benefit schemes (EFRBS) will offer a new challenge to employers trying to keep higher earning individuals engaged in pension saving.

There was an expectation that further changes to allowances might lead to an increase in employers considering unregistered pension schemes as a means of providing more tax efficient benefits for these individuals. However, the government has fired a warning shot that will leave employers wary of setting them up before further clarity is given.

Liam Mayne, principal consultant at Aon Hewitt, said:
“The government put a shot across the bows of any employers considering the idea of providing retirement benefits through an EFRBS with the announcement that it will consult on tackling the use of unfunded EFRBS to obtain a tax advantage in relation to remuneration. This follows on from the clamp down on the use of funded EFRBS in 2011 by the previous government and their clearly stated intention that they would monitor the use of other forms of EFRBS in the future.

“EFRBS have been an alternative and tax-efficient way of providing final salary, and in some cases defined contribution, benefits to those affected by the lifetime and annual allowances, but employers will now have to think twice before using them. The question now is what other alternatives can they use? Many employers will be resigned to providing little significant pension benefits for higher earning individuals and offering additional cash instead – potentially via a tax efficient wrapper like a corporate ISA as a way to re-engage employees in their wider savings.

Liam Mayne continued:

“Employers may simply have to be more creative in the way they help individuals through this ever more complex area. It is our view that many will ease access to online tools, offer subsidised IFA costs, or give more and clearer information in annual benefits statements to allow regular monitoring against the allowances.”