Auto-enrolment pension scheme opens
Up to 10 million people are expected to be eventually be enrolled in the new workplace pensions scheme
A landmark scheme to automatically place millions of people into workplace pensions is now under way, with many workers saving for their future for less than the cost of a weekly pint of beer.
Up to 10 million people are expected to be eventually be enrolled in what is hailed as the biggest pensions revolution since David Lloyd George ushered in state pensions a century ago.
A handful of 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.
More than half a million people will be newly saving into a workplace pension by Christmas, according to Government estimates.
Savers will typically need to put aside just over £2 a week to get them started, according to Nest, a not-for-profit pension scheme set up under the new rules.
In the first four years of the scheme, workers contribute a minimum of 0.8% of earnings which works out at around £2.37 a week for someone on an average annual salary of around £20,000, Nest found. Based on this average, employers will contribute nearly £3 per week as well and almost 60p will be added in tax relief, meaning the total going in is just under £6 a week, or around £25 a month or £309 a year.
But by 2018, as the minimum contribution increases, 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, Nest said.
Automatic enrolment aims to tackle growing concerns about an old-age poverty crisis, as people live for longer but fail to put enough away for their later years.
Recent official figures show that the number of private sector workers paying into a pension is at its lowest since records began in 1953. Last year 2.9 million private sector workers put money into schemes, the first time active membership has dipped below three million.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: "The UK is drifting towards an iceberg when it comes to paying for its old age, and we need radical reform like this."