TUC Assistant General Secretary Kay Carberry says employers are already used to exploiting any potential loophole in tax legislation to minimise their tax bill and would do the same with pensions.
Carberry says: “We have always supported the broad definition of pay set out in the Bill. If it is not widely drawn there is the potential for unscrupulous employers to try to redefine part of the wage packet as a bonus or some other non-qualifying element of pay in order to reduce their pension contribution.”
“Understandably people talk in shorthand of an 8 per cent contribution. But it is an 8 per cent contribution only on a band of pay. Many lower paid workers will therefore find a significant part of their pay does not attract pension contributions.
“We therefore strongly oppose any amendments to the Bill that would mean any employee was not getting this minimal 8 per cent over the relevant earnings band.”
John Lawson, head of pensions policy at Standard Life says: “The reason that schemes are failing the test is not due to their lack of generosity, but rather the complexity of the exemption test. Schemes that are more generous thanpersonal accounts are failing the qualifying earnings test because it uses banded earnings and non-basic elements of pay such as bonus and overtime. This means that one or two employees might fail the test each month, depending upon how much overtime they work, but the other 98 or 99 employees will receive a much higher contribution than they would under the personal accounts definition.
“The key problem is the exemption test, not the generosity of employers. The government needs to simplify this test so that generous schemes can continue to contribute 8 per cent or more of basic pay.”