Workers could be enrolled automatically in pensions

Click to follow
Indy Politics

Workers could be enrolled in company pension schemes automatically in a step towards a compulsory system, David Blunkett will suggest today.

Workers could be enrolled in company pension schemes automatically in a step towards a compulsory system, David Blunkett will suggest today.

The Secretary of State for Work and Pensions will announce that the Government may change the law so that employees have to opt out of occupational pension schemes instead of deciding to opt in, as they do at present.

The change would be aimed at the four million people who do not bother to join company schemes and so forgo contributions to their pensions from their employer worth about 5 per cent of their salary. As a result, they miss out on pension benefits of about £5.6bn - an amount that would reduce Britain's £27bn pensions shortfall.

Mr Blunkett, who took over responsibility for the thorny issue of pensions in the post-election reshuffle, will set out his thinking at a conference held by the Pensions Commission, which is considering whether to recommend a compulsory system in its final report by the end of the year.

Automatic enrolment in occupational schemes is seen as a halfway house between the current system and full-scale compulsion under which all workers would be forced to contribute to their pension. Some ministers, including the Chancellor Gordon Brown, are nervous about compulsion, fearing that it would be seen by some as a tax rise.

Mr Blunkett plans an advertising campaign to inform workers about the benefits of joining company schemes. He believes the Government will need to go further and is attracted by the idea of asking employees to opt out. Although he does not think the move would be a "silver bullet", he hopes it could provide one element in a package that would solve the pensions crisis.

One government source said: "Many people, when they move jobs, do not bother to join the pension fund because they think they might not stay there long or have financial pressures. They might well regret that decision later because they are missing out on the chance to provide for their retirement with the help of contributions from their employer."

In today's speech, Mr Blunkett will call for the widest possible national consensus on reform and urge interested groups to "listen to each other". But he has ruled out a "lowest common denominator" approach and admits that not everybody will be satisfied by his proposals.

Automatic enrolment is backed by the Association of British Insurers, which wants tax breaks for firms that persuade two-thirds of their workforce to join their pension schemes.

Mr Blunkett told the Commons yesterday that he had to square the "impossible aspirational circle of people who want to live longer, who want to live better, who want to retire earlier and want someone else to pay". He said: "The question for all of us is whether it is the role of government, over and above the basic and second pension, to be engaged in compulsion for either individuals or employers."

He sidestepped a Tory challenge over whether the Government would switch to a compulsory scheme before the next election. "I am not ruling out options before we've had a chance to consider them but that does not mean we have ruled them in," he said.

One option available to ministers is to bring in legislation to combat the pensions crisis before the next election, but it would not take effect until afterwards. Mr Brown has said a major change such as compulsion would not be introduced until the next parliament.