The Trades Union Congress (TUC) has urged pensions minister Mike O’Brien to resist pressure to water down the test that will be used to determine if a scheme can be exempted from the system of personal accounts due to come into effect in 2012.†
Employers seeking to gain exemption must show that they are making minimum contributions, calculated as a percentage on a band of earnings, that are at least as good as those required by persoal accounts. The Pensions Bill, which is currently going though the House of Lords, contains a broad definition of earnings including bonuses, overtime and allowances, all of which must attract this minimum contribution for every employee.
O’Brien is facing pressure from industry and employer groups which argue that some types of earning should be exempt or that the test should be weakened in order to, for example, allow a proportion of scheme members to receive smaller contributions.
In a letter to O’Brien, Kay Carberry, TUC assistant general secretary, said: “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. We are worried that any move, even to meet legitimate problems, could have unintended consequences. Employers are already used to exploiting any potential loophole in tax legislation to minimise their tax bill and would do the same with pensions.”