Pension changes could leave millions worse off

Nov 10 2006 by Brian Amble Print This Article

The radical overhaul in Britain's workplace pension arrangements that will force employers to pay three per cent of salary into workers' pensions is likely to mean that two-thirds of companies will actually reduce pension payments to new staff.

Almost a quarter (23 per cent) of employers also said that the new arrangements would lead them to cut the level contributions they paid to their existing staff if the new system of personal pension accounts proposed in the Pensions White Paper is introduced in 2012, new research by Scottish Widows has found.

Under the proposals, employees will pay a minimum of five per cent of their income into the accounts, while the government will make contributions to the accounts through tax relief.

But with around two-thirds of the 750 employers surveyed saying that they will 'level down' the amount they pay into staff pensions to the statutory minimum of three per cent, many people could find themselves worse off under the new arrangements than they are today.

Less than a third (23 per cent) of companies said they would leave their existing pension arrangements untouched if the plans are introduced.

"It is very worrying that companies who already have generous pension arrangements are likely to reduce their contributions once personal accounts are introduced," said Ian Naismith, Scottish Widow's head of pensions market development.

"The government needs to make it as easy and worthwhile as possible for them to retain their existing arrangements," he added.

The research also quizzed some 6,000 Britons about their attitudes towards the pensions proposals and found that most employees believe that there should be some obligation on employers to contribute to pension arrangements.

But the proposal that that they could increase their pension income by almost a third by opting to retire at 68 rather than 65 was less popular, with six out of 10 unwilling to work beyond the current retirement age.

However a third claim that they simply cannot not afford to save for retirement at all, while experts warn that the proposals will do little to help the self-employed.