Millions likely to be enrolled in workplace pension ‘revolution’

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 per cent of earnings – around £2.37 a week for someone on an average annual salary of around £20,000.

Based on this average, employers will contribute nearly £3 per week 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.

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.

Official figures show 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, dropping below three million for the first time.

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.

“Crucially, this reform will reach those who have no pension: the young, the low-paid and those working for small businesses.

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.

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.”

Ros Altmann, director-general of the firm Saga which provides holidays and financial services to people over 50, recently said that people’s confidence in pensions has been knocked by scandals and low annuity rates which have “left many pensioners receiving much poorer value for their pension savings than ever before”.

Pensions Minister Steve Webb said: “We are proud to be introducing this truly historic change which will radically alter the way we save for our old age and see millions more people putting something aside for the future. From October we will start seeing large firms, such as banks and big supermarkets, automatically enrolling their staff into a workplace pension.”