Government promotes scheme 'to boost pensions take-up'
Thursday 20 September 2012
More than half a million people will be newly saving into a workplace pension by Christmas due to a landmark initiative to automatically place employees into schemes, the Government said today.
The Department for Work and Pensions (DWP) said that around 600,000 more people will be saving into a pension for the first time by the festive period, and by May 2015 some 4.3 million more people will be saving for their retirement.
From October 1, the largest employers, with 120,000 or more workers, must place eligible workers into schemes, with firms gradually being enrolled in a staging process over the next six years.
The automatic enrolment scheme, which has been described as the biggest pensions shake-up in more than a century, aims to tackle concerns about a growing old age poverty crisis, as people are living for longer but failing to put away enough for their later years.
Iain Duncan Smith, Secretary of State for Work and Pensions, said: "Automatic enrolment will get up to nine million more people saving into a workplace pension and for many it will be the first time they have had the opportunity to save.
"It will allow people to start planning for their retirement and this will make it easier for them to start putting something aside, along with a contribution from their employer."
Figures released yesterday by the Office for National Statistics (ONS) showed that the number of private sector workers paying into pension schemes has plummeted to its lowest level since records began in 1953.
There were 2.9 million private sector workers placing money into schemes last year, marking the first time active membership has dipped below three million.
Steve Webb, Minister for Pensions, said: "Few policies affect as many people and this will be a truly radical social change.
"All the international evidence shows people respond positively to automatic enrolment, and I'm determined to make sure that pensions are no longer seen as the preserve of the few."
Some analysts have said the Government should go further in encouraging people to save, for example by making pensions more flexible so that workers can take some cash out if they need to or by increasing Isa allowances.
People are struggling to find accounts to give them real returns on their savings and to put money aside in the first place amid high living costs and the Bank of England maintaining the base rate at a historic low.
Saga director-general Ros Altmann said yesterday that people's confidence in pensions has been knocked by scandals, disappointments for people whose pensions have not turned out as they expected and low annuity rates which have "left many pensioners receiving much poorer value for their pension savings than ever before".
She described the UK's pension system as "the most complex in the world" and filled with jargon.
The Government says that 11 million people in the UK are not saving enough for their retirement, and while pension saving has fallen across all age groups, the decline has been steepest among those aged between 22 and 29, falling from 43% in 1997 to 24% today.
Estimates over opt-out rates have been 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.
Employers will eventually contribute 3% of earnings, individuals 4% of earnings, and there will also be 1% of tax relief to make up a total contribution of 8%.
A new advertising campaign featuring TV stars including Theo Paphitis and Nick Hewer has been launched to raise awareness of the scheme, which will see anyone who is aged over 22, currently earning more than £8,105 and working for a firm which is affected automatically enrolled.
Mr Duncan Smith and Mr Webb were visiting a Co-op store in the Fulham area of London today to explain the reasons behind the shake-up.
TUC general secretary Brendan Barber said: "This is a truly historic advance. For the first time every employer will be compelled to contribute to the pensions of their staff - a union objective for many years.
"This Government deserves praise for taking forward the plans put forward by the Pensions Commission under the previous administration."
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