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New UK pension scheme is unveiled New UK pension scheme is unveiled
(about 7 hours later)
Plans for the automatic enrolment of workers into a new pension system have been unveiled by the government.Plans for the automatic enrolment of workers into a new pension system have been unveiled by the government.
From 2012, workers not in occupational pension schemes will be enrolled in "personal accounts" unless they opt out, under the White Paper's plans.From 2012, workers not in occupational pension schemes will be enrolled in "personal accounts" unless they opt out, under the White Paper's plans.
Staff will pay in 4% of their salaries and employers 3%, with an extra 1% from the government in tax relief.Staff will pay in 4% of their salaries and employers 3%, with an extra 1% from the government in tax relief.
Ministers believe the new scheme, called personal accounts, will boost annual pension savings by up to £8bn.Ministers believe the new scheme, called personal accounts, will boost annual pension savings by up to £8bn.
The proposals affect up to 10 million workers who are not in employer-funded schemes.The proposals affect up to 10 million workers who are not in employer-funded schemes.
Launching details of the scheme, Pensions Secretary John Hutton said its aim was to overcome "the inertia and short-termism" which was stopping people making financial decisions, particularly in low-income households.Launching details of the scheme, Pensions Secretary John Hutton said its aim was to overcome "the inertia and short-termism" which was stopping people making financial decisions, particularly in low-income households.
The system's key features are that employers will be forced to contribute if their staff join up and individuals will keep their accounts when they move jobs.The system's key features are that employers will be forced to contribute if their staff join up and individuals will keep their accounts when they move jobs.
'Cheap to run''Cheap to run'
The government argues that the personal accounts will be cheap to run.The government argues that the personal accounts will be cheap to run.
Responding to fears that accumulated pension savings will simply erode entitlements to means-tested pension credits, ministers estimate that by 2050, nine out of ten pensioner households will benefit if they save in personal accounts.Responding to fears that accumulated pension savings will simply erode entitlements to means-tested pension credits, ministers estimate that by 2050, nine out of ten pensioner households will benefit if they save in personal accounts.
PERSONAL ACCOUNTS EXPLAINED Employees compelled to join the scheme, unless they already have a good workplace pension or choose to opt outEmployees can pay in a maximum of £10,000 in year one and £5,000 in future yearsPeople will not be able to transfer funds from existing pension plansContributions will be collected centrally and paid into investment funds Start date for personal accounts will be 2012Personal accounts part of a wider pension shake-up involving a raising of the state pension age to 68 PERSONAL ACCOUNTS EXPLAINED Employees compelled to join the scheme, unless they already have a good workplace pension or choose to opt outContributions will be paid on earnings between £5,000 and £33,500 p.a.There will be an annual ceiling on total contributions of £5,000People will not be able to transfer funds from existing pension plansContributions will be collected centrally and paid into a choice of investment funds Start date for personal accounts will be 2012Personal accounts part of a wider pension shake-up involving a raising of the state pension age to 68
"Without an increase in private savings, future generations could retire poorer than today's pensioners and poorer than they expect to be," the White Paper said."Without an increase in private savings, future generations could retire poorer than today's pensioners and poorer than they expect to be," the White Paper said.
The government hopes the scheme will help plug the gap in the nation's retirement savings and supplement the continuing state pension and private pension systems.The government hopes the scheme will help plug the gap in the nation's retirement savings and supplement the continuing state pension and private pension systems.
The idea was first proposed by Lord Turner's Pensions Commission to ensure that more people save for retirement.The idea was first proposed by Lord Turner's Pensions Commission to ensure that more people save for retirement.
The new scheme will be set up by a delivery authority and then run by an independent personal accounts board similar to a set of pension fund trustees.The new scheme will be set up by a delivery authority and then run by an independent personal accounts board similar to a set of pension fund trustees.
Women 'benefit' Warm welcome
About 12 million people are currently estimated not to be saving enough for their retirement. The government now believes that seven million people are failing to save enough for their retirement - substantially fewer than previous estimate of up to 12 million made by Lord Turner.
Michelle Mitchell, of the charity Age Concern, said the new pension system would be particularly beneficial to women. The publication of the White Paper outlining the government's proposals drew widespread support.
There has been a great deal of employer and industry lobbying to weaken crucial aspects (of personal accounts) Brendan Barber, TUC general secretary href="http://newsforums.bbc.co.uk/nol/thread.jspa?threadID=4971&edition=1" class="">Send us your comments The Investment Managers Association said they provided the best choice for low cost pension provision.
"Personal accounts are good news for anyone without access to a decent occupational pension, particularly the millions of women who are currently missing out," she said. Its chief executive Richard Saunders said: "The centrally administered model works best for small employers by providing a single point of contact for them and the minimum of red tape."
However, the TUC has warned that some employers may put pressure on staff to opt out of the scheme in order to avoid paying their contributions. Gordon Lishman, director general of the charity Age Concern said: "Personal accounts will offer a beacon of hope to millions of people struggling to find their way through the pensions wilderness.
"There has been a great deal of employer and industry lobbying to weaken crucial aspects," said TUC general secretary Brendan Barber. "The proposals put forward in this White Paper are good news for anyone without access to a decent occupational pension, many of whom are women," he added.
BBC Economics Correspondent Hugh Pym said there was "broad acceptance" of the plan from industry groups, but that some small businesses had objected to the idea of compulsory contributions. The TUC welcomed the plans as well.
Breaking consensus? "Compulsory employer contributions are a major gain for people at work," said TUC general secretary Brendan Barber.
The government has spent a lot of time and effort trying to win support for its main policy of raising the value of the state pension in line with earnings rather than inflation but paying it later, from age 68. "In particular, we welcome the government's rejection of employer lobbying for a waiting period before employees can join or rejoin the scheme in each new job."
But on personal accounts there has been some concerted criticism. However, the Association of British Insurers said that the plans needed some alteration.
Lord Turner's Pensions Commission was behind the new pension idea It said the contribution cap was too high and that there was still some confusion about how personal accounts would interact with means-tested benefits.
The Lib Dem shadow work and pensions secretary, David Laws, said the accounts would be of little benefit to anyone who was self-employed or who spent time out of employment.
"The huge number of means-tested benefits which accompany them will lead to many people losing up to 85 pence of every pound that they save," he said.
The National Association of Pension Funds (NAPF) has warned that companies with more generous schemes could be tempted to level them down to match the new accounts.
It urged ministers to ensure the plans complemented rather than replaced existing schemes.
Some small businesses have also objected to the idea of compulsory contributions.