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Product category: Pensions and retirement
News Release from: Standard Life Bank | Subject: Pensions bill
Edited by the Insidemoneytalk Editorial Team on 10 December 2007

Pensions Bill - breaking views - Almost
impossible to comply with good scheme
opt-out

The Pensions Bill published yesterday contains provisions for the opt-out of good existing schemes.

These conditions (Part 1, Chapter 1, Sections 14 to 24) generally specify that schemes can qualify for an opt-out if they have contributions equivalent to 8% of "qualifying earnings" However, the definition of qualifying earnings (Part 1, Chapter 1, Section 11) includes overtime, bonuses, commission, statutory sick pay, statutory maternity and paternity pay and statutory adoption pay

Qualifying earnings are also based on the band of earnings between £5,035 and £33,540.

Most existing company pension schemes base contributions on full earnings (rather than earnings over £5,035) and on basic pay only (some use bonuses and overtime but these are not the norm).

That means that for each employee, the scheme must work out whether 8% of basic pay is greater than or equal to 8% of total pay between £5,035 and £33,540.

John Lawson, Head of Pensions Policy at Standard Life said: "This provision will be almost impossible for good existing schemes to comply with.

Providers do not hold this level of detailed earnings data and therefore the only person who could perform this check is the employer.

If the employer becomes bogged down in bureaucracy then there is a high likelihood that existing schemes will be closed in favour of personal accounts.

This condition needs to be changed to allow existing definitions such as 8% of total basic pay to be compliant.".

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