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Government amends basic pay definition

The Government has bowed to industry pressure over automatic enrolment self-certification rules and amended its definition of basic to exclude “variable elements” such as commission, bonuses and overtime.

In May, Money Marketing revealed that a last-minute change to the tests used by employers to self-certify their pension scheme meant they would be based on basic earnings rather than pensionable earnings.

If the change had been pushed through, experts that warned employers running good quality schemes would have been forced to change their certification process. As a result of the increased costs, they said employers would be likely to level down their pension schemes.

Last week, the DWP published self-certification guidance which amended the definition of basic pay to exclude variable elements.

A DWP spokeswoman says: “We have worked closely with employers and industry to set out a model and definition of pensionable pay that combines simplicity for employers with safeguards for members. The draft regulations and guidance set out in detail a three-tier certification test as recommended by the making automatic enrolment work review and will mean that employers can use their own definition of pensionable pay, as long as it meets the standards of basic pay.

“It will mean that employers who already offer good quality pension schemes can continue to do so without getting lost in unnecessary red tape.”

Standard Life head of pensions policy John Lawson says: “We are delighted the DWP has listened to industry representation on this. Basic pay schemes can now continue uninterrupted.”

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