Exemption test is a ‘cost time-bomb’ for UK employers

With Personal Accounts now looming large on many employers’ horizons, Origen has issued a stark warning to the UK government regarding the true impact of part of its proposed legislation.

There is increasing industry concerns that Group Personal Pensions (GPP) or Group Stakeholder Plans (GSP) will fail to meet the ‘qualifying’ test to achieve exemption from Personal Accounts. Such schemes are now used by the vast majority of UK employers for staff pension provision.

Steve Herbert, Senior Benefits Education Consultant, Origen, said: “Origen understands that it is now unlikely that such schemes will be exempt from the Personal Accounts regime. If this is true, this is a massive oversight in the regulations and will have huge additional cost implications to the vast majority of UK employers.

“Put simply, this is an unexpected ‘cost time bomb’ for employers, and we are really concerned that the UK government is just expecting too much from employers in this area.”

Herbert continued: “Most employers can already expect to see a significant increase in pension costs and administration as a result of this legislation. If the employer must also consider changing from their existing GPP to an older style, and often more administratively expensive, Trust based scheme, it is likely to be one cost too many.

“The cost of rewriting GPPs to a Trust based contract and communicating changes to employees could easily cost UK plc millions of pounds.”

Origen believes that in this scenario many, and perhaps most, employers will opt to level down to Personal Accounts. This would result in both lower overall pension savings and an extension of the Savings Gap.

Herbert concludes: “The original intention of Personal Accounts was to help non-savers to begin saving. As it currently stands however, it is possible that Personal Accounts will have a detrimental effect on the vast majority of existing company supported pension arrangements, thus making the pensions crisis in the UK significantly worse.”