A loophole in legislation on pensions could leave up to four million employees in the UK exempt from new pension laws. The badly drafted legislation of the government’s flagship auto-enrolment scheme for employees could lead to employees missing out on potential employer contributions until 2017.
The law regarding pensions changed in October 2012 and will see all employers having to automatically enrol their staff onto a pension scheme by 2017. The loophole in the legislation concerns what is known as ‘hybrid’ pension schemes, offering both defined benefit (DB) and defined contribution (DC) options.
Businesses that offer hybrid pension schemes can defer from auto-enrolment of their staff until 2017. Although it was intended that employees at firms offering such schemes would only be exempt if employees could choose which part of the scheme they wanted to join, the loosely written legislation actually allows any business offering such a scheme to be exempt from auto-enrolment, even if the existing scheme is no longer open to employees.
Over the four years until 2017, employers in this position could save considerable sums of money that they would otherwise have had to pay towards staff pension contributions. For example, an employer would have had to pay £8,000 in contributions for an employee earning £40,000 on a scheme involving a 5% employer contribution rate.
The only way to close the loophole would be for the government to invoke emergency powers and fast-track a change in the legislation.
Frenkels Forensics offer expert advice and assistance in relation to pension calculations for a range of circumstances, including divorce settlements and schedules of loss for personal injury claims. Any change in the law relating to pensions will in turn have a knock on effect on such calculations.
Vitek Frenkel of Frenkels Forensics commented: “Our forensic accountants produce complex calculations and reports in relation to pensions on a daily basis and as such, we always ensure our team of experts are 100% up to date with any changes to pension legislation.
“With all of the changes that have come into force regarding pensions recently, it is vital that expert forensic accountants such as ourselves are instructed in relation to any pensions calculations to ensure the sum reached is correct and the client’s full entitlement is ascertained”.