FTAdviser.com

Advertising

John Lawson, head of pensions policy for Standard Life, who has had a number of high-level meetings with pensions minister Mike O'Brien, said the definition of qualifying earnings and its bands in the Pensions Bill now going through parliament would push employers into equalising their contributions to personal accounts and group personal pensions.

As a result he said this could force many smaller employers to reconcile any differences at the end of the tax year, leaving hard-pressed staff battling through a mass of red tape. The confusion may even cause many to close schemes leaving the lowest earners worse off.

He said: "As it stands the employer would have to reconcile any extras required at the end of the year which causes some serious paperwork. This will force many smaller businesses just to close their schemes and push employees into personal accounts.

"Yet under personal accounts people do not receive any personal contributions for the first £5,000 so people on less than £15,500 could lose £268 each year. This is a lot when you consider this is the very market the government is targeting.

"I have therefore suggested to the DWP they introduce either 8 per cent of gross band earnings or 8 per cent of basic pay, both of which would apply to personal accounts and qualifying schemes at the employer's discretion."

However correspondence between the DWP and Mr Lawson show this has been dismissed on the grounds of "human rights" as it would be in breach if employees were subject to differing schemes, giving one group an unfair advantage.

Mr Lawson said: "I find this slightly confusing. I am not criticising Mike O'Brien who seems keen and open to talk to us, yet I do have concerns over the concept of annual reconciliation which is now being discussed.

"While not unreasonable, it still does not address the issue of some of the poorest workers having to make good the difference and the employers having to top up. I understand this is a difficult issue to solve but it needs to be addressed as this is not conducive to people remaining in the system."

Rachel Vahey, head of pensions development for Aegon UK, echoed Mr Lawson's views and said it was ridiculous the Human Rights Act was being cited when defined benefit schemes were already judged on different criteria.

She said: "Argued on this basis it just does not hold water. We appear to have lost perspective on what we are here to do, namely get people enrolled on to a pension plan which will keep them in retirement."

Michelle Lewis, senior policy officer for the National Association of Pension Funds, said the group was lobbying hard to address this issue saying the pensions bill was meant to sit alongside existing schemes and not simply cancel them out.

She said: "The Pensions Bill implies existing companies need to change their pension schemes and this does not take into account that many firms go beyond the call of duty already.

"We are concerned with how qualifying earnings bands will hit company schemes and, in turn, upon employees. We are actively talking to the DWP about this."

A spokesman for the DWP said: "We want to minimise any disruption to current pension arrangements. That is why the qualifying test must be designed in as simple a way as possible.

"We are listening to stakeholders and remain open to reasonable suggestions about how the test may be applied."