Businesses urged to embrace automatic pensions enrolment

Jun 22 2006 by Nic Paton Print This Article

The British government has urged employers to take a long, hard look at how automatic enrolment of workers into occupational pensions could help to plug the country's pensions' black hole.

Pension reform minister James Purnell told a seminar hosted by the National Association of Pension Funds that employers had a crucial role to play now in tackling pension undersaving.

Purnell said 4.5 million people worked for employers that ran pension schemes yet did not save in them.

The government was keen to work with employers to look at whether auto-enrolment into occupational schemes could encourage people to start saving now.

Last month, the government in its pensions white paper unveiled plans to raise the state retirement age to 68 from 2044, restore the link between the state pension and earnings and introduce "personal accounts", a low-cost national savings scheme by 2012.

Purnell said: "Encouraging saving is the lodestar of our reforms. We want to tackle undersaving now and create an environment where individuals take personal responsibility for their income in retirement.

"We will introduce personal accounts in 2012 which will make it easier for people to save. But that doesn't mean people should put off their savings decisions until then," he added.

"We know that where employers provide access to a pension scheme, only around a third of workers are currently members. We therefore want and need to work with employers to see what more we can do to encourage employees to save," he continued.

"And the obvious option here is automatic enrolment. We know automatic enrolment works," he added.

A survey by NAPF last year of its members' occupational schemes found that where automatic enrolment was in place, 89 per cent of employees stayed in the scheme compared with just 42 per cent who joined schemes without automatic enrolment, Purnell pointed out.

The government issued guidance last year for the pensions' industry on automatic enrolment in relation to personal pensions, and would now explore whether it could provide similar guidance for employers, Purnell concluded.