DWP u-turn on personal accounts exemption threatens existing schemes says Standard

Hopes of preventing damage to UK workplace pensions following the introduction of the Government\'s latest savings initiative in 2012 have suffered a major setback after civil servants abandoned talks with the industry aimed at setting a simple benchmark for exempted schemes says Standard Life.

Standard says the DWP has abandoned discussions with a cross-industry group aimed at developing an acceptable quality test for existing pension schemes. It fears this could have a detrimental impact on existing savings provision, potentially leaving low to middle income earners worse off in retirement.

Over the last month an industry group representing providers and employers has been in discussions with the DWP regarding the need for a quality test for existing workplace pension schemes which would not represent an unacceptable burden for employers.

The solution put forward by a group comprising of the ABI, NAPF and CBI called for employers to be allowed to certify that the majority of their employees would be as well off, if not better off, than under existing arrangements than they would be in the personal accounts scheme. This test would have allowed schemes to continue using their existing definitions of pensionable earnings and would have been performed every three years, thereby representing a negligible burden for employers.

But at a meeting earlier this week, DWP officials stunned the industry group by announcing they would not be progressing with the idea. Instead the Government will progress with a quality test developed by its own officials which will effectively require pension schemes to adopt the same definition of pensionable earnings as personal accounts.

Standard says the move will impact heavily on employees, particularly low earners, as it would lead to the first £5,035 of earnings being disregarded for the purposes of calculating pension contributions. In turn, this reduction in contributions would lead to a significant lowering of pension benefits. Women will be particularly affected as they make up the majority of part-time workers.

John Lawson, head of pensions policy at Standard Life said: “Millions of low earners are set to lose out as a result of the Government’s failure to listen to concerns on this issue. The Government has repeatedly claimed that it wants personal accounts to complement rather than compete with existing pension provision, but this appears to be nothing more than empty rhetoric. In fact, the opposite would appear to be true. The Government appears to be hell-bent on destroying existing provision rather than protecting it.”