Government changes qualifying earnings rules following industry concern

After lobbying from organisations such as the National Association of Pension Funds and the Confederation of British Industry the government has agreed to let employers use existing methods of calculating employees' qualifying pay for pension contributions.

The NAPF said the government risked undermining both retirement savings for lower earners and leaving each pension scheme with a £25,000 - £100,000 bill if they did not revise the definition of qualifying earnings or pensionable pay in the current Pensions Bill.

The trade bodies argued plans to count earnings – including bonuses, overtime and commission – when calculating the 7pc of total earnings would hurt low earners.

Pensions reform minister Mike O'Brien said: "We’ve listened to concerns and made considerable progress. We continue to work with a wide range of stakeholders on the detail.

"Employers will be able to use their existing contribution calculations where these provide equivalent or better contributions than the minimum set out in the reforms, when assessed over a period of up to a year.

"The government will bring forward amendments for the Lords Report stage, should these be necessary, to make this position clear and to facilitate an annual test."

NAPF chief executive Joanne Segars said: "We welcome the fact that the minister is reviewing this issue and listening to key stakeholders because it is important to protect existing workplace provision. However, the devil of how this will work will be in the detail.

"It is important that existing schemes can administer the new rules easily and with no additional costs."