Changes in pay definition may affect auto-enrolment, says L&G

Changes in Definiton of Pay May Affect Auto-enrolment, Said L&G

Changes in Definiton of Pay May Affect Auto-enrolment, Said L&G

The government’s additional effort to articulate a definition of pensionable pay for auto-enrolment self-certification may backfire as employers will scale back provisions, warned Adrian Boulding, pensions strategy director at Legal & General.

In May this year sections of the media had revealed last minute changes to automatic enrolment self-certification rules may undermine the reforms as it encourages employers to cut back on quality pension provisions.

Policymakers had proposed changes to the draft rules, suggesting that tests used by employers to self-certify their pension schemes should be based on basic salary of employees, rather than their pensionable earnings.

The Department for Work and Pensions (DWP) had appointed a three member team, of which Boulding was a member, to review the original recommendations of the Turner Commission on automatic enrolment, including the simplification of employer’s self-certification process.

“There is an ongoing debate within the DWP on how to define pensionable pay but the definition should be kept as broad as possible because good schemes have lots of different definitions. If the Government wants to pin down a specific definition, it is unlikely to correlate with many existing pension schemes, so good schemes will have to make changes,” said Mr. Boulding.

“If an employer is changing a good scheme in the current economic circumstances, there is only one way they are going to change it, they will make it worse. If the DWP pushes this change through, it will be counter to what the review team was trying to do and it would be a tragedy for part-time and low-paid staff”, he added.

Agreed Robert Reid, managing director of Syndaxi Chartered Financial Planners. “The big risk with this is that companies will level down. But the idea that DWP lawyers would accept a non-specific term such as pensionable earnings is laughable”, said Mr. Reid.

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