Trades unions and employees gave a cautious welcome to the new workplace pensions scheme which began yesterday. People working for firms with more than 120,000 employees are now automatically enrolled in schemes to help them save for retirement.
They pay in at least 0.8 per cent of their salary and this is topped up by 1 per cent from their employer and 0.2 per cent in tax relief. For an average salary of £20,000, this equates to an employee paying in £2.37 a week, their employer putting in £3 and 60p being added in tax relief, working out at least £309 per person per year.
The scheme will be gradually rolled out over the next six years, with contributions being slowly increased, until the smallest companies – those with fewer than 58 staff – are enrolled in January 2015.
Estimates of opt-out rates are varied, although the Government believes the reforms will eventually lead to between six and nine million people newly saving or saving more in all forms of workplace pensions. The TUC general secretary ,Brendan Barber, said: "With this Government and the last helping ensure a wide consensus around the reform package, we have some certainty that we are now at the beginning of a pensions new deal. Of course it can and should be made better but we now have what should be a stable framework."
The CBI director general, John Cridland, said: "The change is rightly being phased over many years, to ensure it remains affordable for businesses in these tough times." By 2018 employees will be putting aside around £12 of their pay every week, in return for almost £9 from their employer and nearly £3 in tax relief, leading to average annual contributions of £1,235.
When someone retires they have to buy an annual pension, or annuity, with their pot. Someone paying into the scheme over a 40-year career would have more than £46,000 in contributions, which could grow to nearly £90,000 if there was an average 3 per cent a year return on their fund.
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