There are many powerful people saying that the House of Lords must act to prevent pension savers being short-changed. The Pensions Bill should be re-considered and amended to ensure that millions of people in workplace pensions are able to benefit from contributions based on their full salary. If things aren’t improved then people will suffer with lower retirement incomes and pension annuities.
The ABI, NAPF, ICAEW and SPC[1] have produced a comprehensive briefing document for members of the Lords, ahead of the Bill’s Committee Stage in the Lords. Amendments, which we hope Their Lordships will support, will be tabled and discussed during the debate.
For pension reform to succeed, we need to see more savers, and they need to be 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 are applied across the board. The House of Lords should pass these amendments and ensure that millions of pension savers are not short-changed by the Government’s proposals.
Under the Government’s current proposals around the ‘Qualifying Earnings’ limits for personal accounts, 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.
Existing workplace and occupational schemes, which in any case have 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, leaving millions of consumers short-changed, yet costing the pensions industry millions to implement the changes.
