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Lords must act to prevent pension savers being shortchanged

The Pensions Bill must be amended to ensure that millions of people in workplace pensions are able to benefit from contributions based on their full salary, say a powerful group of pension organisations.

The ABI, NAPF, ICAEW and SPC[1] have produced a briefing document for members of the House of Lords, ahead of the Bill's Committee Stage in the Lords today (17 June). Amendments, which we are urging Their Lordships to support, will be tabled and discussed during the debate.

Maggie Craig, the ABI's Director of Life and Savings, said:

"For pension reform to succeed, there must be more savers, saving more for their retirement. Workplace pensions already serve millions of people very well, and the extension of automatic enrolment to these schemes will benefit millions more. But people will lose out if the qualifying earnings rules, which are sensible for personal accounts but not for other pension schemes, are applied across the board. We are urging the House of Lords to pass these amendments and ensure that millions of pension savers are not short-changed by the Government's proposals."

The problem arises due to the ‘Qualifying Earnings' limits for personal accounts, the proposed new pension system for low and moderate earners. Under the Government's plans, contributions will be paid into personal accounts only on earnings between £5,035 - £33,540, with the employee putting in 4% and the employer 3%, with a further 1% top-up via tax relief.

However, existing workplace and occupational schemes, which in any case have typical employer contributions of around 6%, calculate contributions based upon the whole basic salary of employees, from the first pound that is earned. The danger with the legislation as currently drafted is that employers could be forced to change scheme rules to accommodate the more limited personal accounts earnings band. This would leave millions of consumers short-changed, yet cost the pensions industry millions to implement the changes. Amendments that the ABI and others are encouraging the Lords to accept would prevent this from happening.

[1] Association of British Insurers, National Association of Pension Funds, Institute of Chartered Accountants in England and Wales and the Society of Pension Consultants

Last updated 01/07/2016