New Compulsory Pension Laws

New laws set up an additional state pension system, known as “personal accounts”, run by an independent body.

The system introduces compulsory pension saving for employees not already members of good company pension schemes. Employers as well as staff will have to make contributions, to improve the level of pension saving in the UK.

There will also be automatic enrolment, and compulsory employer contributions, into existing company pension schemes to encourage fuller take up.

The new system will be operational from 2012 and employees compelled to join the scheme unless they already have a good workplace pension, or choose to opt out.

Contributions will be paid on earnings between £5,000 and £33,500 p.a. and there will be an annual ceiling on total contributions of £3,600. People will not be able to transfer funds from existing pension plans, while contributions will be collected centrally and paid into a choice of investment funds

Personal accounts are part of a wider pension shake-up involving a raising of the state pension age to 68. Staff will pay in four per cent of their salaries and employers three per cent, with an extra one per cent from the Government in the form of tax relief.

Ministers hope that by introducing automatic enrolment they will overcome the barrier of inertia, which is one of the reasons why people do not save enough for their retirement.

About seven million workers are not putting enough away for their old age and the new system will encourage savings from low to moderate earners in particular.

Age Concern said: “We are glad the Government has taken up the Pensions Commission’s recommendations for automatic enrolment into this scheme. However we also want it to invest in providing good quality information and advice about pensions and savings, to help people make informed choices on saving for retirement.

But critics say the Government’s attempts to increase incentives to save for retirement are totally undermined by its obsession with means-testing.

“Many people on low to middle incomes will think twice about setting aside money for old age when Labour’s massive increases in means-testing means that they would simply be saving money for the Government rather than themselves,” said Liberal Democrat spokesman Danny Alexander

And the National Pensioners Convention, Britain’s biggest pensioner organisation, said the Bill would commit a generation of low paid workers to a private pension scheme that could not guarantee they would be above the level for means tested benefits when they retire.

“The money spent on such a financial gamble should be used to strengthen the state pension system rather than unreliable private pensions which lacked public confidence and credibility,” it said.


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