Pensions shake-up aims to get all workers saving
THOUSANDS of workers in Devon are to be pushed into private pensions – paid directly out of their wages – in a bid to ensure they have enough cash in old age.
Against falling numbers of staff joining workplace pension schemes, the Government will from next month start introducing so-called "automatic enrolment", in a radical move to get people saving for their retirement.
Firms will have to sign up eligible employees to a pension, into which they both will have to contribute.
As the Government wants as many people as possible to join, workers will have to actively opt out if they do not want to join a pension scheme.
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A third of staff are forecast to take this route. But they will be re-enrolled every three years and given the same option.
It has been hailed as the biggest shake-up in pensions for more than a century.
Pensions Minister Steve Webb said: "We don't want people to retire and see their standard of living fall off a cliff."
Official figures produced by the Department for Work and Pensions show the proportion of people signing up to workplace pension schemes in the South West has plummeted over the last 13 years, from 55 per cent to just 41 per cent. In the region well over half of employees – around 680,000 eligible workers – do not have a private pension.
The system is being phased in over five years, with the biggest firms enrolling first. The Government has given smaller companies longer to prepare.
Those working for firms employing fewer than 50 people won't be enrolled until June 2015 at the earliest.
The very smallest employers will not be required to enrol staff into a pension until 2018.
Anyone aged over 22 years old who pays income tax and is not already in a pension scheme will be automatically enrolled.
To start with one per cent of an employee's pay will be automatically deducted, with the firm making the same contribution. This will increase over time and so staff will eventually contribute four per cent of earnings, with firms adding three per cent and the Government one per cent through tax relief – giving a total of eight per cent.
Mr Webb said: "This is the only way of saving where you are guaranteed an employer contribution. If you say no it's like missing out on a pay rise.
"If we do nothing fewer and fewer people will have no pension and retire in poverty if we are not careful."