Pensions Reform Comes Into Effect

The UK workplace pensions reform is well under way, with automatic enrolment into a workplace pension beginning today.

The goal of the new legislation us to ensure low and middle earners are provided with an addition to the state pension.

But the Institute for Fiscal Studies has warned that, under the new rules, some employees who might have saved more may stick to the minimum level.

The new regulations will see workers aged over 22 have a proportion of their salary automatically diverted to a pension pot, provided they are not already part of a workplace pension scheme.

For many employees, this will be the first time a boss has contributed to pension savings.

The initial proportion will only amount to a minimum of 0.8% of a worker’s pensionable earnings, with employers then required by law to add an additional 1%. Tax relief adds another 0.2%

This will later increase to 4% from the worker, 3% from the employer and 1% in tax relief.

Pensions Minister Steve Webb told the BBC: "The huge gap that we are trying to fill is [in] long-term pension saving."

"We have got half the workforce building up no pension beyond the state pension, and that is why this system is such a positive thing.

"You don't have all the hassle and complexity of choosing a pension. The firm chooses it for you, they put money in, you put money in, and then the only hassle is if you want to opt out", he said.

Only large employers, like supermarkets, will take part in the first phase of automatic enrolment. Others will then join as the system is rolled out.

The smallest firms will not sign up their staff until June 2015 at the earliest.

(IT)