ABI: Lords must act to prevent pension savers being short-changed

ABI: Lords must act to prevent pension savers being short-changed

ABI: Lords must act to prevent pension savers being short-changed

The Pensions Bill must be amended to ensure that millions of people in workplace pensions are able to benefit from contributions based on their full salary, say a powerful group of pension organisations.

The ABI, NAPF, ICAEW and SPC have produced a briefing document for members of the House of Lords, ahead of the Bill’s Committee Stage in the Lords today (17 June). Amendments, which we are urging Their Lordships to support, will be tabled and discussed during the debate.

Maggie Craig, the ABI’s Director of Life and Savings, said:

“For pension reform to succeed, there must be more savers, 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, which are sensible for personal accounts but not for other pension schemes, are applied across the board. We are urging the House of Lords to pass these amendments and ensure that millions of pension savers are not short-changed by the Government’s proposals.”

The problem arises due to the ‘Qualifying Earnings’ limits for personal accounts, the proposed new pension system for low and moderate earners. Under the Government’s plans, 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.

However, existing workplace and occupational schemes, which in any case have typical 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. This would leave millions of consumers short-changed, yet cost the pensions industry millions to implement the changes. Amendments that the ABI and others are encouraging the Lords to accept would prevent this from happening.

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Notes for Editors

1. Enquiries to:
Jonathan French 020 7216 7392 (Mobile: 07958 330 480)
Malcolm Tarling 020 7216 7410 (Mobile: 07776 147 667)
Erfan Hussain 020 7216 7411 (Mobile: 07712 841 184)
Kelly Ostler-Coyle 020 7216 7415 (Mobile: 07968 364 302)

2. The joint briefing note for Peers on the issue of qualifying earnings is available on the ABI web site, www.abi.org.uk.

3. The ABI is the trade association for Britain’s insurance industry. Its nearly 400 member companies provide over 94% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold up to a sixth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.

4. An ISDN line is available for broadcasts.

Copies of all ABI news releases, together with other information from the Association, can be seen on our website http://www.abi.org.uk