My Profile | About Us | Contact Us | Site Map

 

You are here > Homepage | The Cutting Edge | Blog

Blog

Stating the pensionable obvious

Andrew Tully, Senior Pensions Policy Manager, October 2008

Saying that pensions are complicated is a little like saying that markets are currently volatile - stating the obvious. The issue of qualifying earnings is one example, a subject so complex that most eyes glaze over at the mere mention of the words.

But, if we focus on the outcome, qualifying earnings is a simple topic. Unless the Government make changes many low earners, including a significant proportion of women, will lose out. And lose out substantially.

Small and medium size employers want to run their business, not run a pension scheme. Imposing lots of bureaucratic red tape around their existing schemes will push employers down the path of least resistance. That means either closing their scheme and putting employees in personal accounts, or adopting the same earnings definition as personal accounts as this means the red tape disappears.

Both result in the first £5,035 of earnings being ignored for pension purposes. Now for high earners and those who receive reasonable bonuses and commission this isn't a big problem - some may even benefit, although DWP's own figures suggest this will be 30,000 people at the most. But lower earners will lose out as the amount received in bonuses and overtime doesn't match the £5,035 which is ignored. So they will receive smaller pension benefits, by huge amounts in some cases.

Given such a stark and simple message, most people would imagine some action would be taken. Unfortunately, even though there has been endless discussion, we've yet to see any concrete moves. And even more bizarrely the Trades Union Congress support the status quo - are they really saying they want lower pension provision for their most poverty stricken members?

Making a change here to significantly reduce red tape for employers, along with an appropriate compliance regime undertaken by the Pensions Regulator, gives a win-win position. Yes, providers win because pension contributions stay at higher levels. But employees - especially low earning employees - also win by getting better pensions. Now doesn't that sound the simplest option for everyone?

Tax and legislation are liable to change. This information is based on Standard Life's current understanding of law and HM Revenue & Customs practice.

Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.

The information on this site is for qualified advisers only and must not be relied on by anyone else. If you are not an adviser you should go to our main website for information about our products and services.

---