Over a third (36%) of employers are still to take action after the removal of the Earnings Cap along with other pre A-Day rules in April 2011, with a further 30% still undecided on what course of action to take.
Group Risk Development (GRiD) has reiterated that for these employers the Lifetime Allowance has come into play as the maximum lump sum payable on an employee's death in service, with death in service pensions completely unlimited.
Benefits payable from occupational pension schemes and employer sponsored death in service arrangements under pre A-Day rules were subject to the old HMRC limits. Additionally, the Earnings Cap was introduced in 1989 to set a further limit on the salary that could be used to calculate benefits.
A-Day (6 April 2006) introduced a single tax regime to replace the previous ones. A transition period ended on 5 April 2011, when post A-Day rules were automatically applied.
Unless other action was taken by employers/trustees - such as putting a salary cap back in - the Earnings Cap was automatically removed and the Lifetime Allowance generally came into play as the maximum lump sum payable on an employee's death in service.
Unless employers/trustees take action, they continue to inadvertently face increased/uninsured liabilities and unbudgeted costs.
The potential uninsured liabilities for dependants' death in service pensions are even greater as they fall outside of the Lifetime Allowance and thus will be completely unconstrained unless action is taken.
The research found that 15% of employers questioned had opted to put a salary cap back into their schemes and a further 11% have removed the earnings cap all together.
The lifetime allowance has also been reduced from £1.8m to £1.5m so there will be some additional issues around employers taking action for those with death benefits over £1.5m to protect their previous position.
Katharine Moxham, spokesperson for GRiD, comments: "It's disturbing to see just how many employers have failed to give any thought to how they deal with the removal of the Earnings Cap. If they don't act now, they continue to risk potentially crippling uninsured liabilities"
