Government’s landmark auto-enrolment pension scheme begins
Over ten million UK workers will today be automatically enrolled into a new workplace pension scheme. This will affect those aged between 22 and State Pension age in companies with more than 120,000 employees. Smaller firms will be introduced to the scheme over the next six years.
During the first four years employees will make a minimum contribution of 0.8% of their earnings. Their employer will match this with 1% of the same figure and tax relief of 0.2% will be applied. The aim is that eventual contributions of 4% from the worker, 3% from the employer and 1% tax relief will be achieved.
The change comes as concern grows that, as the population grows older, contributions into pension schemes are decreasing. Figures show the number of private sector workers with pensions is at its lowest since records began in 1953. It is hoped that this new auto-enrolment pension scheme will go some way to averting the old age poverty crisis.
Steve Webb, Minister for Pensions, said: “We are proud to be introducing this truly historic change, which will radically alter the way we save for our old age, and see millions more people putting something aside for the future.
“If we can get between 6 and 9 million more people saving in a pension by the time all employers are in, that’s a genuine savings revolution.”
However, the Institute for Fiscal Studies (IFS) has raised a few questions. While they recognise a need to increase the number of private sector employees paying into workplace pension schemes (which was at just one in three in 2011, compared to four in five private sector employees), they say the impact of this reform will have an ambiguous affect on overall saving. Evidence shows the default measures will result in employees making the minimum contribution, and that current economic conditions could exacerbate opt-out rates.
Joanne Segars, Chief Executive at The National Association of Pension Funds (NAPF), said: “This is a game-changer that will get millions of people saving for their retirement. The UK is drifting towards an iceberg when it comes to paying for its old age, and we need radical reform like this.
“Things have got to change. Less than half the workforce is saving into a pension and, without auto-enrolment, millions would end up scraping by on the state pension alone.
“Crucially, this reform will reach those who have no pension – the young, the low-paid, and those working for small businesses.”