Heeding to the industry’s call that automatic enrolment self-certification rules would encourage employers to cut-back on pensions provisions, the government today bowed to the pressure and announced last minute changes.
In May it was reported that last minute changes to the tests used by employers to self-certify their pension schemes would mean that contributions were based on basic pay rather than pensionable earnings.
The Department for Work and Pensions (DWP) has decided to amend the definition of basic earnings, excluding “variable elements” such as commission, bonuses and overtime.
“We have worked closely with employers and industry to set out a model and definition of pensionable pay that combines simplicity for employers with safeguards for members”, said a DWP spokeswoman.
“The draft regulations and guidance set out in detail a three tier certification test as recommended by the ‘Making automatic enrolment work’ review and will mean that employers can use their own definition of pensionable pay, as long as it meets the standards of basic pay”, she added.
“It will mean that employers who already offer good quality pension schemes can continue to do so without getting lost in unnecessary red tape”, she said.
“We’re delighted the DWP has listened to industry representation on this. Basic pay schemes can now continue uninterrupted”, said Standard Life head of pensions policy John Lawson.
“This is good news for low earners in basic pay schemes who will still get a pension contribution on the first £5,715 of their earnings”, he added.
If the DWP did not amend the original proposal, employers running successful and quality schemes would have been forced to change their certification process.
Legal & General pensions strategy director Adrian Boulding had cautioned last week that employers facing financial crunch may make their pension schemes worse as a result of the original proposal.