01 October 2012 10:37
A landmark scheme to automatically enrol millions of people into workplace pensions has begun in a move that will see up to 10 million people eventually placed into the scheme.
A handful of the largest employers, with 120,000 or more workers, must place eligible workers into schemes, with firms gradually being enrolled in a staging process over the next six years.
More than half a million people will be newly saving into a workplace pension by Christmas, according to Government estimates.
Savers will typically need to put aside just over £2 a week to get them started, according to Nest, a not-for-profit pension scheme set up under the new rules.
In the first four years of the scheme, workers contribute a minimum of 0.8% of earnings, which works out at around £2.37 a week for someone on an average annual salary of around £20,000.
Based on this average, employers will contribute nearly £3 per week as well and almost 60p will be added in tax relief, meaning the total going in is just under £6 a week, or around £25 a month, £309 a year.
As the minimum contribution increases by 2018, employees will be putting aside around £12 of their pay every week, in return for almost £9 from their employer and nearly £3 in tax relief, leading to average annual contributions of £1,235, Nest said.
Recent official figures show that the number of private sector workers paying into a pension is at its lowest since records began in 1953.
Last year 2.9 million private sector workers put money into schemes, the first time active membership has dipped below three million.
TUC general secretary Brendan Barber said: "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."