The Labour government's controversial saving scheme has left pensions experts worried that millions of workers will see the value of their pensions collapse, according to the Daily Mail.
New legislation, to be announced on December 12, 2006, will require all bosses to pay into a pension scheme for employees, effective 2012. The proposed new personal account pension, also referred to as the Britsaver, will have tax relief of 1% and will see workers pay in a minimum of 4% of their salaries, while employers will contribute a minimum of 3%.
Although work and pensions secretary John Hutton has called the proposal the catalyst for a new savings culture in our country, pensions experts are worried that it may lead to bosses significantly reducing their employees’ pensions.
At present there is no legal obligation for employers to pay into employee pension schemes, but according to the newspaper, those that do are contributing an average of 7.6% of an employee’s salary, a much greater percentage that the new personal account requires. This has sparked concern that pensions will be the first thing to be cut when businesses are looking to reduce costs.
According to the Daily Mail, the Conservatives have labeled the scheme yet another attack on occupational pension saving, and Philip Hammond, Tory pensions spokesman, has commented that this will provide an irresistible temptation to companies looking to save money on existing pensions schemes.
As of 2012, workers will be automatically enrolled into the new personal account but will be given the chance to opt out if they wish. According to the newspaper, the Department for Work and Pensions, has stated: Workplace pensions are an important recruitment and retention tool. We believe the benefits offered by employers will continue to reflect this, despite admitting that of the approximately 10 million workers eligible to have a personal account, the opt-out rate could be as high as 40%.