THE PENSIONS INDUSTRY has welcomed the government's ‘savings revolution' as auto-enrolment begins with its first staging date.
Today, the largest employers in the country will begin auto-enrolling their eligible staff for the first time.
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.
"Between now and 2018, more and more employers will come on stream, right down to the smallest ones.
"If we can get between six and nine million more people saving in a pension by the time all employers are in, that's a genuine savings revolution."
The Confederation of British Industry, after long discussions with the Department for Work and Pensions on how and when auto-enrolment will hit employers, gave the landmark policy its stamp of approval.
Director-general John Cridland said: "The UK needs a renewed focus on long-termism if we are to secure sustainable private sector growth and rebalance the economy.
"Auto-enrolment is the right way to meet the challenge.
"1 October marks a new dawn for pension saving. The change is rightly being phased over many years, to ensure it remains affordable for businesses in these tough times.
"The business community is committed to helping employees to achieve a good income in retirement."
Trades Union Congress general secretary Brendan Barber said: "UK workplace pensions were once the envy of the world but too many employers have walked away from their responsibilities, and now just one in three private sector workers are in a pension, threatening many with a miserable retirement.
"This is why auto-enrolment is so welcome. Every employer will now have to play their part – a victory for many years of union campaigning.
"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."
National Association of Pension Funds chief executive Joanne Segars said: "This is a game-changer that will get millions of people saving for their retirement.
"Things have got to change. Less than half the workforce is saving into a pension and, without auto-enrolment, millions would end up scraping by on the state pension alone.
"Crucially, this reform will reach those who have no pension – the young, the low-paid, and those working for small businesses.
"It's important that people are put into well-managed, high-quality pensions that offer good value for money. We have to bolster faith in the system, and there's no point bringing workers into a bad pension which they then turn their backs on."
The National Employment Savings Trust calculated that the majority of new savers created by auto-enrolment will be able to begin saving and getting employer contributions and tax relief, by paying in just £2 per week – less, it pointed out, than the price of a pint of beer.
Chief executive Tim Jones said: "Automatic enrolment is an excellent start. It will mean millions of people who have never had one before get a pension and employer contributions as well."
However, law firm Eversheds said auto-enrolment schemes may be even better than ‘a good start'.
Having conducted a survey of 250 employers, Eversheds said 37% of businesses plan to provide all of their workers with a scheme exceeding the minimum auto-enrolment requirements.
A further 27% said they will offer more than the minimum standard of scheme requirements to at least part of their workforce.
Pensions partner Ingrid Everson said: "The initial fear that the introduction of auto-enrolment would result in employers levelling down their pension arrangements to the auto-enrolment minimum were greatly exaggerated.
"Employers are using the introduction of auto-enrolment as an opportunity to review their pension arrangements but most are continuing to provide benefits in excess of the minimum requirements."
However, some industry figures were less enthusiastic than others. PwC pointed out the inequality between people who are pensioners now and youngsters who will start saving for the first time in auto-enrolment.
The accountancy firm calculated that a woman of 22 being auto-enrolled in October on statutory minimum contributions would receive a retirement income, including state pension, of £18,000 per year at age 70.
This would be a third of the £50,000 per year salary she would be likely to receive at the end of her career, giving her a replacement rate of one-third, whereas her grandfather would have enjoyed a rate of 77% and her father a rate of 45%.
Pensions partner Peter Woods said: "If someone entering work today wants to retire on anything near what their grandparents or parents can expect, they cannot rely solely on minimum contributions.
"Auto-enrolment is a great start, but it needs simplification and clarification around state pensions to make saving worthwhile. The trick to its success will be to get the younger generation into saving through inertia, so they start saving as early as possible in their careers."
You may also like
AccountancyAgeInsight is a frequently updated resource centre for finance professionals, offering a free and easy-to-use digital library of briefings, white papers and other information resources.