Department for Work and Pensions
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New pension measures announced to help employers
New measures designed to ease the administrative and financial burdens on employers running pension schemes were announced today by Pensions Minister, Rosie Winterton.
Following discussions with stakeholders, employers will now be able to 'self certify' that their pension scheme meets the quality standard based on the expected value of pension contributions to be made over the course of each coming year.
The Bill states the quality standard for a money purchase scheme is that members receive contributions of 8% of qualifying earnings, of which 3% are made from the employer.
She also confirmed that the rates for the General Levy and the PPF Administration Levy for 2009/10 would be frozen at this year's level to avoid putting additional cost pressures on pension schemes at the current time.
DWP Minister of State for Pensions, Rosie 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. These reforms are based on a broad consensus among stakeholders. For our reforms to work it is vital that wherever we can we make them as simple and straightforward for employers to implement. This will be to their benefit and their employees.
"The amendments will mean that employers who are confident their workers will receive the new minimum level over the year can certify to this extent as opposed to doing so for each individual over each pay period.
"By freezing the General and Administration levies at this year's level I believe we are meeting the commitment we made last year to provide levy cost stability for pension schemes."
DWP Minister, Lord McKenzie of Luton said:
"Over 2 million workers currently receive contributions at or above the minimum laid out in the current Bill. We want this to continue. 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."
Earlier this year, the Government amended the Pensions Bill at the Lords Report stage, to enable employers to carryout the quality test over a period of up to a year. It also confirmed the position that it is the value of contributions going into pension saving, not the method by which they are calculated, that determines whether a scheme meets the test.
Following 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. Once certified, employers will not be required to make retrospective reconciliation payments if contributions unexpectedly fall short, unless the detriment to an individual exceeds certain minimum levels. These levels will be set in such a way to protect individuals from significant, systematic or persistent detriment.
The rates for the General Levy and the PPF Administration Levy for 2009/10 will be frozen at this year's level. The General Levy meets the administration costs of the Pensions Regulator, the Pensions Ombudsman and the Pensions Advisory Service. The PPF Administration Levy meets the running costs of the PPF. This maintains the Government's intention, to provide levy cost stability for pension schemes.
Notes for Editors:
1. The new minimum level of pension saving is due to come in to force from 2012.
2. This decision follows a series of intensive discussions with employer and pensions industry representatives about how to best support employers in maintaining schemes that offer more generous contributions than the minimum but which do not define pensionable pay in the same way as qualifying earnings are defined in the Bill.
3. The certification procedure will be laid out in regulations. The Government will continue the productive dialogue that has developed with stakeholders when preparing draft regulations. The regulations will then be issued for formal consultation next year.
4. Employers will only be able to certify if they are confident that all members of the scheme are on course to receive the minimum level of pension saving.
5. Employers that certify will not be required to make retrospective reconciliation payments unless the detriment to an individual exceeds a minimum threshold at the point of re-certification.
6. All qualifying schemes must meet the standard set out in legislation. Personal Accounts will be a qualifying money purchase scheme.
7. The new qualifying requirement/quality standard: the Bill requires that each member of a qualifying money purchase scheme receives contributions of at least 8% of qualifying earning or equivalent, of which 3% must be paid by the employer.
8. Qualifying earnings: defined in the Bill as pay, including basic pay, overtime, bonus and commission within an earnings band of £5,035 to £33,540 in 2006/7 terms.
9. The administrative resource costs of these pensions organisations are funded through grant in aid payments which are in turn recovered through levies raised on eligible pension schemes. The rates for the General Levy and the PPF Administration Levy are reviewed annually.
10. The PPF Administration Levy funds the day-to-day administration of the PPF fund and is calculated and payable based on the numbers of members in eligible pension schemes. The administrative costs of the Board of the PPF are funded separately from the Pension Protection Fund which the Board manages.
11. The General Levy rates for 2009/10 covers the cost of several organisations - the Pensions Regulator, the Pensions Ombudsman and the Pensions Advisory Service - which play a vital role in ensuring that scheme members' interests are safeguarded and that members get good, impartial advice.
Public enquiries: 020 7712 2171
Website: http://www.dwp.gov.uk
