Standard Life says employers could be forced to rethink their pension contribution structures after the Government included geographic salary allowances in its definition of basic pay for automatic enrolment self-certification.
In May, Money Marketing revealed a last-minute change to the tests used by firms to self-certify their scheme meant they would be based on basic rather than pensionable earnings.
Industry experts warned that employers would cut back on quality pension provision unless the Department for Work and Pensions reversed the decision.
In July, the Government amended its definition of basic pay to exclude “variable elements”, such as commission and bonuses. However, the definition includes salary allowances given to employees working in different parts of the country with higher living costs, such as London.
According to Standard Life head of pensions policy John Lawson, most employers that run pension schemes do not include these allowances in their current definition of basic pay.
He says: “Employers will have to change the definitions in their pension scheme to build in pound allowances. It will result in higher contributions for employers paying staff in those parts of the country.
“Companies are going to have to think about their contribution structures and it is going to cost them more money, even if they just extend the definition of basic pay to include pound allowances for these staff.”
Confederation of British Industry senior policy adviser Mario Lopez Areu says: “This has been raised by a few of our members but we will not be lobbying for any change. The focus for us now is ensuring the 2012 reforms are communicated properly.”
Intelligent Pensions technical director David Trenner says: “From an employer’s perspective it is crucial they get advice on how to implement the changes.”