As reported in our July 2008 Update, the National Association of Pension Funds (NAPF) and other industry bodies have been in discussion with the Government to change the definition of “Qualifying Earnings” in the Pensions Bill.

The industry group has been proposing a quality test which would have allowed schemes to continue using their existing definitions of pensionable earnings and which would have been performed every three years, “representing a negligible burden for employers”.

However, the DWP has now announced that it will not be progressing with this idea. Instead, the Government is to progress with its own quality test which will require pension schemes to adopt the same definition of pensionable earnings as the personal accounts scheme. This test would apply to gross annual earnings in the range from £5,035 to £33,540, or their monthly or weekly equivalents. Compliance with this rule would create extra work for employers with schemes with more restrictive pensionable earnings definitions, even though they may contribute more than the minimum 3 per cent required for a qualifying scheme to be offered as an alternative to personal accounts.

Comment: this unexpected and unwelcome U-turn by the DWP, if adopted, could result in disadvantage for the lowest paid workers and higher costs for employers.