DWP backtracks on qualifying earnings

The Government has made a major concession on the definition of qualifying earnings that should significantly reduce detrimental effects to existing pension provision when personal accounts and auto-enrolment are introduced in 2012.

The Department for Work and Pensions says employers will be able to keep their own contribution bases where they contribute an equivalent or greater sum into a workplace pension than personal accounts.

Under the DWP’s original plan all earnings, including overtime and bonuses, would have counted towards calculating the pay band within which earnings must be contributed to the scheme under personal pension accounts.

The NAPF had warned that the Government risked undermining both retirement savings for lower earners and leaving each pension scheme with a £25,000 to £100,000 bill if they did not revise the definition of Qualifying Earnings.

Pensions Minister Mike O’Brien said: “We’ve listened to concerns and made considerable progress. We continue to work with a wide range of stakeholders on the detail. “Employers will be able to use their existing contribution calculations where these provide equivalent or better contributions than the minimum set out in the reforms, when assessed over a period of up to a year.

“The Government will bring forward amendments for the Lords Report stage, should these be necessary, to make this position clear and to facilitate an annual test.”

Joanne Segars, NAPF chief executive said:”We welcome the fact that the minister is reviewing this issue and listening to key stakeholders because it is important to protect existing workplace provision. However, the devil of how this will work will be in the detail. It is important that existing schemes can administer the new rules easily and with no additional costs.”