The TUC has urged Pensions Minister Mike O'Brien to resist pensions industry lobbying to water down the test to decide whether an employer's pension scheme is good enough to qualify as an alternative to Personal Accounts.
To gain exemption, employers will need to show that they are making minimum contributions, calculated as a percentage on a band of earnings, that are at least as good as those required by personal accounts.
The Pensions Bill, currently going through the House of Lords, contains a broad definition of earnings, including bonuses, allowances and overtime - all of which must attract this minimum contribution for every employee.
However, there has been strong lobbying from the pensions industry that some types of earnings should be exempt or that the test should be weakened in another way, such as allowing a proportion of scheme members to receive smaller contributions. It believes unless the definition is changed, many existing schemes will be closed and employers will be forced to introduce Personal Accounts.
However, in a letter to the pensions minister, the TUC expresses its view the pensions industry has had it all its own way so far.
Assistant general secretary Kay Carberry writes: “I understand that you have been subject to heavy lobbying on this issue by some parts of the pensions industry.
"We know the difficulty of maintaining the consensus and that this involves a certain degree of compromise, but during the passage of the Bill the pensions industry has received the extremely good news that the EU, with our support, will allow auto-enrolment even in commercially run workplace pensions.”
The letter outlines the TUC’s support for the broad definition of pay set out in the Bill.
“If it is not widely drawn there is the potential for unscrupulous employers to try to redefine part of the wage packet as a bonus or some other non-qualifying element of pay in order to reduce their pension contribution.
'We are worried that any move, even to meet legitimate problems, could have unintended consequences. Employers are already used to exploiting any potential loophole in tax legislation to minimise their tax bill and would do the same with pensions.”
It says is strongly opposes any amendments to the Bill that would mean any employee was not getting a minimal eight per cent over the relevant earnings band as this would be a fundamental breach of the new pensions consensus.
'We would emphasise that the contribution requirement in the bill is a bare minimum. Understandably people talk in shorthand of an 8pc contribution. But it is an 8pc contribution only on a band of pay. Many lower paid workers will therefore find a significant part of their pay does not attract pension contributions.
"The phased requirement that schemes should meet this very minimal contribution level is not onerous. Any scheme that does not meet this minimum requirement for the great majority of its staff is a very minimal - if not downright mean - scheme.”
“Acceptance of such a low contribution rate was a very significant compromise by the TUC, and we could not accept any exemptions.”
However, the TUC does support some changes to the Bill including making it clear the minimum contributions test should be applied over a year, not within each payment period. So, for example, a non-pensionable Christmas bonus that provides a one-off distortion in a December pay packet should not disqualify a scheme that easily makes the contributions required over the year.
“We accept that there may still be a few anomalous instances where a few staff fail the test over the year because of unusual circumstances such as non-pensionable overtime making up a very large part of income.
“In this case we think it would be reasonable to require the employer to make a one off payment to cover both the employer and worker shortfall as part of an annual reconciliation.”
It also accepts it should be made as easy as possible for trust based schemes to change their rules to ensure that all members make the minimum contributions required by the Bill.
In reponse to the TUC's arguments, the ABI comments: " The TUC is wrong to suggest that the pensions industry's sensible proposals for existing pension schemes would lead to a 'watering down' of such schemes.
"Employees typically benefit from employer contributions of around 6% to workplace personal pension schemes - double the 3% employer contribution to personal accounts.
"Our goal is to ensure that such schemes can continue with higher contribution levels, rather than employers being forced to level down their contributions because of expensive and bureaucratic administrative burdens. This is in the interests of millions of workers.”
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