Pensions loophole ‘will hit poorest’

The Chartered Institute of Securities & Investment (CISI) claims an “unintended consequence” of the new requirements for employers to help staff save for their retirement will actually exclude the most needy.

From 2012, all employees will be enrolled within three months of joining a firm into its pension scheme or a National Employment Saving Trust (NEST) scheme, if that is better value.

As part of NEST – one of the final acts of the last Labour government – the three main stakeholders in an employee’s pension share the cost of providing a money‑purchase pension scheme.

The employer contributes 3 per cent of the worker’s salary, the employee will contribute 4 per cent, and the government, through tax relief, another 1 per cent – making 8 per cent in total.

But CISI, the City’s ethics watchdog, says that, crucially, employers don’t have to stump up if low-paid employees don’t make contributions.

“NEST applies only to those earning between £7,225 and £42,475. This means that part-time and low paid workers miss out because of the unintended consequences of what is, at first sight, a reasonable requirement,” said CISI’s chief executive Simon Culhane.

“To participate and qualify for the 3 per cent contribution from the employer and 1 per cent from the government, the individual needs to contribute 4 per cent of their earnings. Otherwise the company has no liability to contribute. So the poorest people of all will lose out. That cannot be right.”

CISI is now urging 11th‑hour changes to the legislation to do away with any NEST minimum income threshold, and specify no requirement for low paid workers to make a 3 per cent contribution in order to get employer contributions.

Culhane said this was especially necessary “as pension participation among the low paid is particularly low, at less than 20 per cent”.