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A third of companies are overhauling how they reward their higher earners due to new restrictions on the amount people can pay into their pension tax free a year.
PwC’s survey of 130 companies found that the changes to annual and lifetime allowance for higher earners, taking effect in April, were proving a challenge for companies.
The consultant noted that pensions were set to play a much smaller role in the reward packages of higher earners in the future.
Over a quarter of those surveyed added they were reviewing the role of pensions for all employees.
The changes will restrict the annual tax-free amount that higher earners can pay into their pension. From April the current £40,000 annual limit will be reduced to £10,000 for anyone with annual gross income of over £210,000.
As the calculation is based on total income – which includes income from other non-employer-related sources, such as property – PwC calculations suggest that anyone earning over £90,000 a year could potentially be affected by the changes.
The changes also acted as a further catalyst for companies to close their defined benefit (DB) pension schemes; three in ten of those companies with DB schemes were considering closing them to future accrual for scheme members.
More than a third had made the decision to implement cash allowances.
For the companies that had closed schemes to new entrants, but remained open to accrual, half were in discussion to offer cash allowances. Other options included offering flexible accrual to prevent employees breaching the lower annual allowance.
PwC head of defined contribution pensions Philip Smith said: “The changes to annual and lifetime pensions allowance are forcing companies to re-think how they reward their higher earners. It is clear from our research that pensions are set to play a much smaller role in the reward packages of higher earners in the future.
“This could have a knock-on effect for all employees, as a significant proportion of decision makers will be disenfranchised from pension saving. Over the long-term this cannot be a good thing.
“Higher earners will have to fundamentally change how they save for their retirement as their workplace arrangements will change and one of their traditional back-ups, buy-to-let property, will also become a less viable alternative option from next April due to stamp duty changes.”