BeeHive > BeeLines > 2008 > Nov > The End is High NI
The End is High NI
Today’s BeeLine writes itself I think. Yesterday’s BeeLine (The end is NI) got quite a response BeeHive Mailbox-wise. (Thanks – it’s good to know so many of you are out there.)
The big questions raised by yesterday’s BeeLine went somewhere along the following lines:
“Will employers still be able to run non-contributory pension schemes after 2012?”
“Will non-contributory schemes count as ‘qualifying’ schemes after 2012?”
“If an employer runs a salary-sacrifice scheme with an overall contribution rate of 8% will it still count as a ‘qualifying’ scheme after 2012 even if the employee is paying less than a 4% contribution, or even no contribution?”
These questions and many of the others we received this morning are really all the same question. I think the answer to all of them is “Yes!”
Why do I think so? Well, read these excerpts from the Pensions Bill:
| | |
| 20 | Quality requirement: UK money purchase schemes | | |
| (1) | A money purchase scheme that has its main administration in the United | | |
| Kingdom satisfies the quality requirement in relation to a jobholder if under | | 15 |
| | |
| (a) | the jobholder’s employer must pay contributions in respect of the | | |
| | |
| (b) | the employer’s contribution, however calculated, must be equal to or | | |
| more than 3% of the amount of the jobholder’s qualifying earnings in | | 20 |
| the relevant pay reference period; | | |
| (c) | the total amount of contributions paid by the jobholder and the | | |
| employer, however calculated, must be equal to or more than 8% of the | | |
| amount of the jobholder’s qualifying earnings in the relevant pay | | |
| |
|
And this one:
| 26 | Quality requirement: UK personal pension schemes | | 25 |
| (1) | This section applies to a personal pension scheme if the operation of the | | |
| | |
| (a) | is carried on in such a way as to be a regulated activity for the purposes | | |
| of the Financial Services and Markets Act 2000 (c. 8), and | | |
| (b) | is carried on in the United Kingdom by a person who is in relation to | | 30 |
| that activity an authorised person or an exempt person under section 19 | | |
| | |
| (2) | The scheme satisfies the quality requirement in relation to a jobholder if the | | |
| following conditions are satisfied. | | |
| (3) | The first condition is that all of the benefits that may be provided to the | | 35 |
| jobholder under the scheme are money purchase benefits. | | |
| (4) | The second condition is that, in relation to the jobholder, there is an agreement | | |
| between the provider of the scheme and the employer under which— | | |
| (a) | the employer must pay contributions in respect of the jobholder; | | |
| (b) | the employer’s contribution, however calculated, must be equal to or | | 40 |
| more than 3% of the amount of the jobholder’s qualifying earnings in | | |
| the relevant pay reference period. | | |
|
| | |
|
|
| Pensions Bill
Part 1 — Pension scheme membership for jobholders
Chapter 1 — Employers’ duties | | | | |
|
| (5) | In subsection (6), “shortfall” means the difference (if any) between— | | |
| (a) | the employer’s contribution in respect of the jobholder under the | | |
| agreement referred to in subsection (4), and | | |
| (b) | 8% of the amount of the jobholder’s qualifying earnings in the relevant | | |
| | 5 |
| (6) | The third condition is that if there is a shortfall there is an agreement between | | |
| the provider of the scheme and the jobholder under which the jobholder must | | |
| pay contributions which, however calculated, are equal to or more than the | | |
| | |
|
|
The good news contained in these tiny bits of detail is that properly-constructed workplace pension schemes (including Grouped Personal Pensions (GPPs)) that utilise salary-sacrifice will likely present a different, and arguably better value pension option to employers and employees in 2012 than the national scheme of Personal Accounts will be able to achieve unless that scheme too utilises salary sacrifice. I would doubt, however, that the large multi-employer scheme of Personal Accounts would be able to do something so sophisticated at the low level of cost that it is committed to.
The High NI future that will arrive just before the advent of Personal Accounts and auto-enrolment will clearly add even more value to salary-sacrifice schemes than they have at present; I thought that the minute I heard the Pre-Budget Report speech on Monday and that’s why I wrote what I wrote yesterday.
I don’t see much ‘doom and gloom’ in all this for proper pension schemes. I’d go further; I think that all of this means that the pensions industry and its professional advisers ought to be able to add real value to employers’ pension offerings they will be required by law to put in place for their eligible employees by 2012. It’s a great story just waiting to be told…..
28 November 2008
Source: Pension Act 2008
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.
Parliamentary material is reproduced with the permission of the Controller of HMSO on behalf of Parliament.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
