Pensions fight gets personal
STEVE DOWNES The bid to tackle Britain’s pensions shortfall was unveiled by the government last night. It includes enforced enrolment in schemes for workers from 2012.
Spend today, and cross your fingers that tomorrow will sort itself out. That is a crass summary of how millions of people are living their lives: running up huge credit card debts but putting nothing aside for their old age.
It could be argued that it is their problem. But when they grow old and have to be supported by a creaking benefits system, it soon affects everybody.
Yesterday, the government detailed its attempt to defuse the pensions timebomb that has been ticking for many years.
The main proposal is to target those reluctant savers by forcing them to put their money into a new pension system.
Pensions secretary John Hutton said people over the age of 22 who were not part of an occupational scheme would be automatically enrolled in the new "personal accounts".
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Employees would pay in 4pc of their salaries, with 3pc from employers and 1pc from the government in tax relief.
The white paper on personal accounts that Mr Hutton was trailing will allow people to opt out - but there is a clear intent that as few people as possible will take the option, which takes effect in 2012.
The interventionist approach by the government includes, for the first time, compulsory contributions by employers if their staff join up.
There is believed to be a broad business consensus in favour of the proposals - with the exception of some small businesses, which have objected to the compulsory contributions element.
Mr Hutton said the white paper would be the catalyst for a "new savings culture" - encouraging millions of people to save for their retirement for the first time.
He said: "Personal accounts will help millions of people take greater responsibility for building their retirement savings and embed a new savings culture at the heart of a comprehensive and balanced pensions settlement.
"These reforms set a sustainable and sensible course. They are in the long-term interests not only of this generation, but of generations to come."
He said the "simple but radical step" would affect up to 10m people - and added that people deciding not to opt out would contribute around £8bn in savings each year.
Final details of the structure of personal accounts will be determined by an independent delivery authority but the savings vehicle will give employees a "simple choice" of investment options, the government said. This will include a default fund for the majority of savers but is also expected to include ethical and branded funds for those who want them, the white paper stated.
There were some fears that setting a 3pc minimum contribution level for employers would lead to a "levelling down" of more generous workplace pension scheme. But Mr Hutton said support would be offered to firms offering their own occupational pension plan.
As such, employers would be exempt from requirements to automatically enrol their employees into personal accounts if they already operated a scheme of broadly equal, or better, value and auto-enrolled employees into it.
However, the white paper said employers would face cost increases as a result of the reform.
Government research predicts that personal accounts will cost companies around 0.7pc of labour costs on average.
The scheme will have a maximum contribution level of £10,000 in the first year and at least £5,000 in subsequent years.
Mr Hutton said: "These reforms are designed to fill a gap in the existing market - we want them to complement the existing market, not compete with it.
"So alongside the creation of the new personal accounts, we will take action to support existing pension provision. There will be no transfers into or out of personal accounts from or to existing pensions schemes and an annual limit will restrict the levels of contributions an individual can put into their account."
Michele Mitchell, of Age Concern, said the new pension system would be particularly beneficial to women. "Personal accounts are good news for anyone without access to a decent occupational pension, particularly the millions of women who are currently missing out," she said.
The TUC has warned that some employers may put pressure on staff to opt out of the scheme in order to avoid paying their contributions.
General secretary Brendan Barber said: "There has been a great deal of employer and industry lobbying to weaken crucial aspects."
The government has worked hard to win support for its main policy of raising the value of the state pension in line with earnings rather than inflations but paying it later, from age 68.
But Liberal Democrat shadow work and pensions secretary David Laws said the personal accounts would be of little benefit to anyone who was self-employed or who spent time out of employment.