Government pension changes 'put success at risk'
Friday, 25 September 2009 07:33
New regulations for the new auto-enrollment pensions may lead to companies dropping existing pension contributions to just one per cent.
From 2012 Pension Account pensions will come on line - with workers automatically enrolled and having to deliberately opt out.
It is hoped this will lead to more people saving for their retirement - with the pensions very much aimed for lower income workers and dubbed 'chip shop pensions'.
However, the Association of British Insurers (ABI) has hit out at the plans put forward by the government for the implementations and low initial contributions from employers.
Maggie Craig, ABI's director of life and savings, said: "Botched implementation of the Pensions Act will put the success of the reforms at risk."
In particular, she questioned the phasing in of contributions from employers starting from one per cent in 2012, rising to two per cent in 2015 and three per cent in 2016.
"It was always understood that some phasing was necessary, but the four-year delay before contributions rise to three per cent is unacceptable," Ms Craig said.
"It means that no employer will have to pay more than one per cent until October 2015 - the rate of saving for people in the scheme will move at the pace of the slowest."
She added employers may be encouraged to ditch private schemes, which benefit from higher contributions, in favour of the state-backed scheme where they could pay just one per cent for at least three years, with government approval.
"So, at a time when Britain is not saving enough, the crucial first few years of the new system will see less saving," Ms Craig concluded.
The government is currently consulting on the changes.
Angela Eagle, minister for pensions, said the changes would "ensure millions of workers on low and moderate incomes will be able to save for retirement in a workplace pension for the first time".
She added: "Our reforms mean people will receive a mandatory employer contribution and tax relief from the state.
"We encourage all stakeholders to continue to play their part in this important consultation as we deliver this ambitious programme."
However, the ABI has also hit out at the six week consultation time instead of the standard 12 weeks.
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