Is this legal?!

Anon1234567

My employer has calculated pension contributions based on total earnings since auto-enrolment began, but had recently realised the scheme rules state that the definition of qualifying earnings is in line with the statutory minimum and has changed the calculation. Can they do this or is there an obligation to pay based on total earnings based on the precedent set? Normally you wouldn’t be able to change scheme rules to a members disadvantage as far as I understand. Interested to know...

xylophone

but had recently realised the scheme rules state that the definition of qualifying earnings is in line with the statutory minimum

He had not actually been complying with the scheme rules and is now?

Anon1234567

Technically not complying by paying in more than required... But there was no explanation to employees of what the scheme rules stated, so we weren’t aware of that. Now we just get less...

Tealblue

The requirement is to comply with the scheme rules. That's what your employer is now doing. Think of it the other way round: if your employer had been paying the statutory minimum but the rules said 'all earnings', would you want to stick to 'the precedent' your employer had set?

bowlhead99

Anon1234567 wrote: »

My employer has calculated pension contributions based on total earnings since auto-enrolment began, but had recently realised the scheme rules state that the definition of qualifying earnings is in line with the statutory minimum and has changed the calculation. Can they do this or is there an obligation to pay based on total earnings based on the precedent set? Normally you wouldn’t be able to change scheme rules to a members disadvantage as far as I understand. Interested to know...

If I understand you correctly,
1) your workplace pension scheme rules do state that the definition of qualifying earnings on which contributions should be paid under the scheme is in line with the minimum amounts considered to be qualifying earnings by the regulations

2) your employer has recently realised that the rules of the scheme allow him to calculate a pension contribution based on this low definition of qualifying earnings, even though he has accidentally been paying contributions on the basis of total earnings which gave a bigger number

3) your employer is from now on, going to properly follow the scheme rules, knowing that the scheme rules state that the definition of qualifying earnings for scheme purposes is in line with the statutory minimum definitions of qualifying earnings. Lowering his pension costs to the amount he is committed to pay under the scheme rules will save him some money - and may for example allow him to pay better salaries and other benefits, or keep employing more staff than he would otherwise be able to, or lower prices to customers to undercut rivals without making a loss, or make more profits, or all of the above.

4) You wonder whether the fact that the employer voluntarily paid greater contributions than the scheme rules required has set some sort of precedent whereby he must continue to keep paying more contributions than the scheme rules require, rather than being allowed to only pay the contributions that the scheme rules require him to pay.

As you suggest, if you sign up to a set of scheme rules and the employer seeks to change the scheme rules to your detriment, that is a bit of a no-no. However, it sounds like the employer does not wish to change the scheme rules for the worse, he just wishes to follow the scheme rules as written. The idea that (4) could be true is a nice idea, but is an optimistic view on your part. Paying the contributions that the scheme rules require seems perfectly allowable and above board.

If the employer communicated the scheme rules badly to you in the past and said that he and you would be making contributions based on your total earnings... and actually he and you are only going to be making contributions going forward based on a part of your total earnings... so the benefit of being in the scheme is not as good as you thought it was going to be... you should now be able to opt out of the scheme if you wish. However, it would probably be a dumb move because then you'll stop getting free money from the employer. Something is generally better than nothing. And you said they didn't communicate it wrong, because they didn't communicate it at all - they just gave you the scheme rules and said they would follow them.

If you have a union or other representative to help you and your colleagues voice your complaints, you should probably do so in the strongest reasonable terms. But without some big collective bargaining power you may struggle to keep the 'cushy number' you've been getting (even though other firms may pay much better pension contributions).

Consider - if your employment contract says you earn £2k a month and one month they accidentally pay you £20k ; can you say that because of 'precedent' you had got used to the £20k a month so they now need to pay you £240k a year rather than the £2k a month in your contract? It would be a nonsense. You could of course threaten to quit if you think you are worth £240k, just like you could threaten leave the company or the pension scheme if they don't pay pension contributions on your full earnings.

Anon1234567

Thanks for the detailed reply. You’re correct on all points. Not that I’ve seen the scheme rules, that’s just what my employer is now saying. I get your point on a salary overpayment, but the difference is these payments have been made to every employee, every month for 3 years. We were never told how qualifying earnings were defined, so just assumed total earnings in line with the contributions paid. The loss is £180 to most employees. That’s a lot if you’re on the minimum wage...

Paul_Herring

We were never told how qualifying earnings were defined,..

They're a legal definition, rather than something that each company can define at-will. Here's a link to them..

https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay

Lots and lots of 'what-if's' and corner cases at the bottom regarding overtime, bonuses and such-like.