The Government was accused of sending mixed messages to UK companies over their pension liabilities yesterday, after drafting new proposals which plan to remove the tax relief on payments made into older pension schemes.
The new proposals, drafted by HM Revenue & Customs over the past few weeks, plan to stop companies claiming tax relief on contributions into closed pension schemes, which no longer relate to the company's ongoing business. The rules will cover the many hundreds of pension schemes of company subsidiaries which have since been sold off or closed down.
Christine Farnish, the chief executive of the National Association of Pension Funds, said the move would affect the vast majority of large UK companies that had old defined-benefit pension schemes, criticising the Government for sending companies a mixed message over their pension responsibilities.
In a letter yesterday to Ivan Lewis, the economic secretary to the Treasury, Ms Farnish demanded clarification, notingthe proposals were contrary to the recent encouragement companies have received from Government to plug their pension deficits. "Of the companies in the FTSE 100, I think most of them would be affected by this," she said. "The Government is not thinking about the bigger picture here."
Ms Farnish said the Government had been encouraging companies to repair their pension deficits in recent months, with the pension protection fund urging businesses to make one-off contributions before the end of March to reduce their future PPF levies.
"This cannot be considered a trivial matter," she added. "The guidance and interpretation ... presents significant practical difficulties for schemes. If this interpretation is implemented as drafted, it is likely that sponsors will be required to have long and protracted negotiations with local HMRC inspectors, leading to different interpretations and arbitrary rule-of-thumb estimates about what is allowable. This is clearly neither efficient nor desirable."
The move would affect companies such as ICI and Scottish & Newcastle which have sold off subsidiaries but held on to the pension liabilities of their former employees. The new rules are set to kick in from the start of the new tax year on 6 April.
HM Revenue & Customs said yesterday it was not willing to comment before Mr Lewis had responded to the NAPF's letter, but stressed that any changes to the rules would not affect the tax relief individuals received on their pensions.
Invensys injects £105m into fund
The engineering company Invensys became the latest to make a substantial one-off payment into its pension fund yesterday, reducing the deficit on its UK scheme by about a third, and putting plans in place to pay down the remainder by 2015.
The £105m payment came less than 48 hours before tomorrow's Pensions Protection Fund deadline, after which companies will have their PPF levy for 2006/07 calculated. Dozens of companies have made payments into their schemes over the past few weeks to reduce the amount that the PPF charges them.
Invensys said its UK pension fund deficit is £325m. However, it has a further £450m deficit in the pension schemes outside Britain.
On top of the £105m payment, the company said it would pay £20m into the scheme in March 2007 and 2008, rising to £35m in 2009 and rising with inflation thereafter.
Ulf Henriksson, Invensys' chief executive, said: "We believe that this is a good deal for the members of the scheme and the company which balances their respective interests. It brings clarity and certainty and meets the criteria set out in the Pension Regulator's draft guidance."Reuse content