Firms look to ‘exotic’ alternatives to pensions for top staff

Major UK companies are looking at exotic alternatives to traditional pensions to help top staff mitigate pension tax relief cuts.

Friends Provident says it has received enquiries from a number of FTSE 250 companies looking for more tax efficient alternatives to pensions.

While vehicles such as Employer Financial Retirement Benefit Schemes (EFRBS), Employee Benefit Trusts (ETBs) and Maximum Investment Plans (MIPs) have been seen as exotic in the past, they will become increasingly common in the financial planning landscape in the coming years, according to Dominic Fryer.

Fryer, UK Corporate Strategy Manager for Friends Provident, says alternative vehicles are becoming more popular due to restrictions on pension tax relief.

"Employers are asking us what alternatives are available for their top staff who will be hit by the loss of pension tax relief, and vehicles like EFRBS are quite attractive alternatives for high earners," he says.

When pension simplification was introduced in 2006, many alternative vehicles fell out of fashion as they were no longer as tax efficient as a pension. However, the renewed complication of pension rules could see their return to the UK marketplace.

While EFRBS, ETBs and MIPs do not attract tax relief for contributions, they offer other advantages, including tax-free employer contributions, and tax-free benefits.

"With tax relief due to be reduced to just 20% for those earning over £180,000 a year, these kinds of exotic products could prove to be more tax efficient for the wealthy, and I expect to they will be more widely used in the future," adds Fryer.