The coalition government is to press ahead with a Labour scheme to force all UK firms, regardless of size, to automatically enrol their staff into a pension scheme from 2012.

Companies will be told pay in a minimum of 1% of every worker's salary into a pension, rising to 3% by 2017. Workers will have to pay in a portion of their salary, phased in over five years, starting at 1% of pay and rising to 4% by 2017.

Every employer, large and small, will have to participate, although not the self-employed. It will mean that hundreds of thousands of small firms that currently do not offer or pay into a pension scheme will have to begin making payments. Many are expected to opt to use a new government-run pension scheme, called "Nest" (National Employment Savings Trust), which promises low costs and charges.

But pensions minister Steve Webb has stepped back from earlier proposals to make workers pay in from the first day of employment. Instead there will be a "waiting period" of three months before an employee is automatically enrolled, unless they ask to join earlier.

The level of earnings at which employees will be enrolled will also rise from Labour's proposed figure of £5,035, to £7,475 (the personal allowance for income tax from April 2011).

Webb said that the reforms will "end decades of decline of membership in workplace pension schemes." He estimated that an additional four to eight million people will start to build up savings for retirement, but dismissed critics who warn of a "levelling down" of existing corporate provision.

Employers currently pay an average of 6.1% of workers' salaries into their pensions. Critics say the changes may lead to some employers reducing their contributions to a minimum, with the norm dropping towards 3%.

There are also fears that low-income earners will simply lose means-tested pension benefits, such as pension credit, as they are forced to accumulate a small pot of money for retirement. Webb said: "We will be trying to make sure that saving is rewarded and we want to make sure that the issues around making it worthwhile to save are tackled."

Earlier this week plans for a new universal pension worth £140 a week per head were leaked, but Webb would not be drawn on details of the scheme, which will be published in a green paper in November.

But there is speculation that once Britain moves towards a higher basic state pension, plus greater private saving through Nest, there may be the progressive withdrawal of other schemes such as pension credit and the state second pension, formerly known as Serps.

Pensions will also be paid later, with the government already committed to raising the state retirement age to 66 in 2020.

John Lawson, head of pensions policy at Standard Life said he welcomed the introduction of a three-month waiting period, which will significantly cut administration costs.

"Under the old rules employers and employees would have had to pay contributions from their first day of eligibility, even if they subsequently decided to opt out. This would have meant hundreds of thousands of savings accounts being created every year that would have been cancelled within weeks of being opened. This huge inefficiency has now been removed."

It is expected that Nest will grow to become one of the biggest pension funds in the country. Nest officials project that it will grow to between £50bn-£100bn in size within thirty years.

The money will be invested in shares and bonds, although Nest says it will be a low-risk fund, largely invested in 'passive' instruments such as index-tracking funds.

Employers who fail to make payments on behalf of their workers will face sanctions from the Pensions Regulator, which will have the power to fine recalcitrant companies.

Employees will still have the right to opt out of the pension arrangements, but officials believe that auto-enrollment will mean that many more will start saving than at present.

"Around 20% of people choose to opt out of auto-enrollment, but that compares to more than twice that number that don't take out a pension if they have to opt-in," said Nest Corporation chief executive Tim Jones.

But the Institute of Directors said that forcing micro-firms to enrol staff may backfire. "While we understand the reasoning behind this, the reality will be that very few employees of micro-businesses will actually be auto-enrolled. It is going to place a huge burden on the Pensions Regulator to attempt to police hundreds of thousand of micro-businesses whose employees may well choose not to engage with pension's saving."

But financial advisers welcomed the proposals. Andrew Strange, policy director at the Association of Independent Financial Advisers, said: "We support the use of societal nudges to encourage the restoration of a savings culture in the UK, and we are therefore pleased to see the roll out of the requirement for all employers to automatically enrol staff into pension arrangements.

"Building a more widespread savings culture is absolutely essential to prepare people for their financial future. The UK has the second lowest savings rate of all OECD countries, with 13 million people in the UK saving inadequately. Nest will provide a crucial component in the development of more prudent and financially protected consumers."

http://www.guardian.co.uk/money/2010/oc ... ll-workers





Something obviously needs to be done, but most of the above is just unrealistic tosh

So how many small businesses will disappear or lay off staff to cover this?

If there is a business who has margins so thin they won't cover 1% increase in wage cost it should not be in business at all. I think this country needs this kind of supervision of personal finances. People prove time and time again that they are useless when it comes to money. Racking up credit card debts, buying houses they can't afford etc. So making sure they save for their retiremenent only makes sense.

Well, let's hope we're not hovering around recession by then. Small businesses, the workers and the people who rely on them, need all the help they can get at the moment.


Make it more difficult to get mortgages and credit. It's not rocket science.

When I worked in mortgages we wouldn't even offer any more than 95% of the value of the house and were very strict about what customers could realistically afford. It wasn't nice letting people down gently but it had to be done.

Credit cards were harder to get a hold of too and this was less than 10 years ago.

I tend to agree with Koli to be honest. A business that's operating with such razor thin margins that a 1% increase in staff costs (which amounts, in a well run business, to a roughly 0.3% increase in overall costs) causes it to struggle is obviously vulnerable to the point of being effectively dead already. Just about anything can increase your costs by 1% if you're a small business. Petrol up a few pence? Oops, you've gone under. One of your suppliers puts their prices up? Oops, you've gone under. You have to absorb the increase in VAT to keep your goods/services competitive? Oops, you've gone under.

if the 1% increase in staff costs is the straw that breaks the camel's back, it isn't that last straw that's the problem - it's all the other straw you already put on there before.

Jon

True, but I very much doubt it will stay at 1%.

The only problem is that 1% from employees and the same from employers will make absolutely no difference to someone retirement prospects. It needs to be much higher. I will give you an example. Assume someone 18 years old on a salary of £25000 pa. That will mean 1% from employer and employee. That would mean £500 per year. Now assume that this is increased grows at 5% pa, then in 40 years time the real value of the pension pot is only £24443. Which at todays interest rates will probably provide and income of £700 pa. The problem is that everyone will still rely on the state pension, in 40 years at this rate.

To provide a pension of two thirds salary which would be £16500 in 40 years, though that will be adjusted for inflation. If we have the same pathetic low interest rates as now then you would need more than £550 000 to provide you with that £16500 income. It would take £4300 per year from employee and employer to get anywhere near that sum. Which is 9 times what the government are proposing. Do this to everyone and it will cut their spending powers and cause a slow down. It does need to be done but that is the problem with savings, it can slow the economy.

The other problem make it too easy for employers to get out of their liabilities and all it does is lead to a race to the bottom in terms of pensions. You end up with the bosses retiring in luxury and everyone else in poverty when they retire.

Your example ignores this part

.. and isn't it better to do something rather than nothing? With the increasing aging population and the ever increasing costs of that part of the population. The current costs will soon be excessive and will cripple the country. People need to come to the reality that money taken by the government for "pensions" is not going into a pot for their retirement but into the general taxation pot.

Exactly so the values will be a lot more. Maybe not a well off retirement but better hen none and of course for the country it will means less topping up by the state
I have ever since i started work been making sure that I will have a good pension. This has meant having less monies today but hopefully when i retire I will have a good level of income

Totally. I am not against the scheme. It just needs to be much higher. It might not be enough to support the person otherwise in retirement. The other problem is that the financial services industry have provided a very poor investment service for the last decade so people will probably have lost a decades profits as a result. The industry love these schemes as they get easy fees.

I do agree that pension savings need to be much higher for all concerned. Though pensions have always been a transfer from todays workers to todays pensioners. If we have people saving as well, it will mean a much more subdued economy for many years until the rate of savings stabilises. It still has to be done. I have thought that the Bank of England should have a savings target instead of worrying about whether the economy was growing fast enough.