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Life offices in pension plea over exempt test

Leading life companies are urging the Government to change the qualifying test for pension personal account exemption to stop mass levelling down and prevent huge damage to existing provision.

Standard Life head ofpensions policy John Lawson considers that pension scheme exemption is a bigger issue than means-testing and estimates that three out of four employer pension schemes would fail the test, including Standard Life’s employer scheme.

The majority of existing employer pension schemes are based on basic pay but the Government wants the exemption test for personal accounts to be based on total band earnings.

Industry experts warn this will create extra bureaucracy for providers to ensure that their schemes constantly meet exemption criteria.

Standard Life, Aegon, Royal London and Legal & General say that if the legislation in the Pensions Bill is passed, it could lead to thousands of companies closing existing schemes and moving employees into inferior personal accounts.

Lawson is calling on the Government to look at adual earnings’ model, using both band earnings and basic earnings, but the Government is understood to consider that this would be too complex.

Royal London head of communications Alasdair Buchanan says many emp-loyers will just give up and move to personal accounts which are not as generous.

Alternatively, they may decide to switch their own schemes to be based on band earnings, which disregards the first £5,035 of every employee’s salary and would reduce the contribution levels for many staff.

Aegon believes that wor-kers could lose out on at least 40 per cent of their retirement income as a result of such a move.

Aegon head of pensions development Rachel Vahey says: “This is very harmful to women and lower-earners and is completely contrary to what the Government is supposed to be trying to do.”

A Department for Work and Pensions spokesman says: “The DWP, of course, understands that many existing schemes use a differ-ent definition and we willbe having further meetings with employer representatives to help improve understanding and identify any residual issues.”

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