The ABI, NAPF, Institute of Chartered Accountants and Society of Pension Consultants lobbied together ahead of the Bill’s committee stage in the Lords at the end of last month, yet early signs are that the Government is yet to be persuaded to concede ground on the issue.
Pensions professionals are concerned about the ‘Qualifying Earnings’ limits for personal accounts, the proposed new pension system for low and moderate earners. Under the Government’s plans, contributions will be paid into personal accounts only on earnings between £5,035 – £33,540, with the employee putting in 4 per cent and the employer 3 per cent, with a further 1 per cent top-up via tax relief.
However, existing workplace and occupational schemes, which in any case have typical employer contributions of around 6 per cent, calculate contributions based upon the whole basic salary of employees, from the first pound that is earned. The ABI says the danger with the legislation as currently drafted is that employers could be forced to change scheme rules to accommodate the more limited personal accounts earnings band.
John Lawson, senior technical manager at Standard Life says: “Lord McKenzie said this is still very much a work in progress so we have got our fingers crossed. We are looking at other forms of amendments, which could include a solution whereby you are OK provided 75 per cent of your earnings are from basic pay.”
Laith Khalaf, pensions analyst at Hargreaves Lansdown says: ” Insisting on including commissions is being justified on the basis that for some professions this is a large proportion of total earnings. But including these extras in qualifying earnings means that employers are going to have to adopt the same definition, which will be costly, or run a Personal Account alongside their existing scheme, or just throw their hands in the air and switch to Personal Accounts.”