UK - Pensions experts are warning the drafting of a government amendment to the Pensions Bill 2008 - allowing employers to 'self-certify' their existing pension scheme meets a "quality" standard - will increase the administrative burden on employers.
Rosie Winterton, the pensions minister, today confirmed employers will from 2012 be able to self-certify whether its pension scheme meets the "quality standard" - where members receive contributions of 8% of qualifying earnings including 3% from the employer.
The issue of how to protect existing occupational pension schemes and to limit the potential for employers to "level down" contributions when personal accounts are introduced - and all pensions will receive 8% in contributions - has led to extensive lobbying by the pension industry, particularly in relation to the calculation of contributions, as it has been claimed the administrative and cost burden of checking every contribution could lead to employers switching to the new regime of personal accounts.
In August, the pensions industry accused the government of a "u-turn" on pensions policy after it appeared to reject industry proposals for a principles-based approach in which employers would certify the "vast majority" of workers would be better off in the existing scheme than in personal accounts. (See earlier IPE article: Gov't denies policy u-turn on personal accounts)
The amendment now announced by the government appears to be a compromise as after "necessary checks" employers who are "confident their workers are on course to receive the new minimum level of pension saving will be able to certify that their arrangements meet the new quality standard".
In addition, the government confirmed once certified employers will not be required to make retrospective reconciliation payments if contributions unexpectedly fall short unless the "detriment to an individual exceeds a minimum threshold at the point of re-certification".
The government added the minimum thresholds will be "set in such a way to protect individuals from significant, systematic or persistent detriment".
Winterton said: "The government understands the pressures that employers are under at the present time and we are committed to helping them in whatever way we can. For our reforms to work, it is vital that wherever we can we make them as simple and straightforward for employers to implement."
Lord McKenzie of Luton, a department for work and pensions (DWP) minister in the House of Lords, pointed out over two million workers currently receive contributions "at or above the minimum laid out in the current Bill".
"We want this to continue," said McKenzie.
"The administration of the quality test is important, and we certainly do not want the new arrangements to undermine existing good provision. The introduction of certification is specifically intended to reduce this risk", he added.
However, the pensions industry has warned the "devil will be in the detail" as more work still needs to be done to make the proposals workable.
Maggie Craig, director of life and savings at the Association of British Insurers (ABI), said while the organisation supported the principle of self-certification and the aim of making good quality schemes straightforward to administer, "we, along with other industry groups, remain concerned that the wording of the key amendment to the Pensions Bill on self-certification may not achieve these aims".
She warned: "The current drafting of the amendment adds considerably to the administrative burden for employers and risks discouraging them from continuing to provide pensions to their employees that have higher contributions than the level set for personal accounts."
Rachel Vahey, head of pensions development at AEGON UK, pointed out while the issue "may be seen as a technical and detailed discussion, its basic principles are fundamental to pension saving in the UK".
Vahey said: "This is all about making sure employers who are already helping their employees save for retirement can continue to do so with the minimum of disruption. Forcing employers through bureaucratic hoops will only run the risk that employers level down to the government benchmark, meaning low earners - a disproportionate number of whom are women - could be hit hardest."
She admitted the "concept of self-certification, if it works well, could go a long way to resolving this dilemma" but warned: "Although the principle is sound, we need to understand how the new proposals will work in practice and whether they will eradicate the need for yearly calculations, before welcoming this change with open arms."
In addition, AEGON warned the government and the industry "need to guard against adverse employer behaviours", as Vahey said employers often have a wide range of employees within their workforce so "forcing changes for just one or two could mean changing the scheme wholesale, with the unintended consequence that many others will lose out considerably".
Winterton meanwhile also confirmed the 2009/10 rates for the general levy - which meets the administration costs for the Pensions Regulator (TPR), the Pensions Ombudsman and the Pensions Advisory Service - and the Pension Protection Fund (PPF) administration levy would be frozen at this year's level in an effort to "avoid putting additional cost pressure on pension schemes at the current time".
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